The Bull is Back
It was a glorious October. The S&P 500 was up about 7% for the month, more than making up for September’s 4.8% decline. Now what?
Earnings are reviving the market. Despite the resurgence of the virus, prolonged supply-chain disruptions, a labor shortage and inflation; company earnings are killing it. So far, reported company earnings are up 39.2% over last year’s quarter with 82.1% beating estimates. Revenues are up 17.8% with 73.5% surpassing estimates.
There is concern about supply issues and inflation. But companies are overcoming the problems for now. There is also a strong global recovery underway and still-low interest rates. The problems could catch up to us in the future. But for now, the market looks solid.
There could be a leadership change underway in the market. The cyclical sectors (energy, financials and materials) had powered the rally through October. But those have been the worst performing sectors over the last week as oil prices and interest rates have leveled off. There could be a change underway. We’ll see.
This portfolio sold calls on some of the cyclical stocks when they were near the recent high, including U.S. Bancorp (USB), ONEOK (OKE) and KKR & Co (KKR). We were able to secure high premiums and the timing looks very good for now.
Meanwhile, earnings are rolling in on the portfolio positions.
Trades this month
October 12th
Purchased Xcel Energy Inc. (XEL) – $63.00
October 15th
Brookfield Infrastructure Partners (BIP) – Called
BIP October 15th $55 calls at $2.00 – Expired
October 20th
Sold OKE November 26th $65 calls at $2.25 or better
October 27th
Sold KKR December 17th $75 calls at $3.50 or better
Purchased FS KKR Corp. (FSK) – $22.01
Stock Portfolio Recap
AGNC Investment Corp. (AGNC)
Yield 8.9%
It’s been an eventful week for this mortgage REIT. AGNC reported earnings last week that beat expectations. But the stock fell more than 4% over the next couple of days after the report. Higher rates and the steepening yield curve, which drove the recent rally, weren’t reflected in that quarter. But the stock fell primarily because of a downgrade by JPMorgan that cited the lack of a catalyst for higher prices going forward.
Yesterday, an outperform rating was reaffirmed by RBC. Analysts often disagree. I believe in the predictive power of inflation and rising interest rates. That’s the catalyst. AGNC has since recovered and regained half of those losses. BUY
Enterprise Product Partners (EPD)
Yield 7.9%
After a big surge higher amidst the energy sector rally, EPD has resumed its floundering ways once again. It’s down more than 9% over the last week and has given back nearly all of its October surge. It reported solid earnings that failed to impress. Volumes were higher pretty much across the board. Most measures of income, including operating income and free cash flow, were higher over last year’s quarter. But not by that much.
Of course, earnings didn’t suffer much in the pandemic. For 2020, distributable cash flow only fell 3% from the prior year. There is no robust recovery because there was no robust bust. Enterprise is being perceived as failing to deliver on the excitement of the energy sector revival. But business is still solid and improving. And that huge distribution is rock solid. BUY
FS KKR Corp. (FSK)
Yield 11.8%
This newest portfolio addition private equity company has a massive yield that should be safe and good stock timing. There are still distortions left over from the pandemic. A sky-high yield like this isn’t easy to find in normal times. The company is improved from the recent acquisition and the business environment should be very favorable for BDCs going forward. BUY
KKR & Co., Inc. (KKR)
Yield 0.8%
This alternative investment asset manager has been absolutely on fire. It soared over 30% in a little more than three weeks as contagion fears from the Chinese real estate issues waned. It finally pulled back a little on Monday. But KKR reports quarterly earnings on Tuesday after the close. Business has been strong but even a good report could result in “selling on the news” after such a strong surge. HOLD
One Liberty Properties, Inc. (OLP)
Yield 5.8%
This isn’t a high-flying sexy stock. But it’s a rock-solid income stock with good timing. One Liberty reports earnings over the next week that should reflect solid business conditions. Industrial REITs are in high demand amidst limited supply. And demand for such facilities is especially strong as the economy continues to recover. BUY
ONEOK, Inc. (OKE)
Yield 5.8%
This midstream energy stock has had a huge run since the middle of September. But the stock has leveled off over the past couple of weeks as the midstream energy subsector has pulled back. It reports earnings on Tuesday after the close and I’m cautious here. Earnings were strong last quarter despite the fact that the company was able to actually grow earnings last year. But the sector has been weaker, and the stock just had a big move. HOLD
Qualcomm Corp. (QCOM)
Yield 2.0%
As I’ve been mentioning, this 5G chipmaker has been a dog since February. It had a huge run higher in the year before that and is likely consolidating. But it still sells at a cheap valuation and business has been booming as royalties pour in from 5G phone sales. Qualcomm reports earnings on Wednesday. The market has been skeptical about this quarter’s earnings despite blow out results in the last two quarters. Hopefully, a better-than-expected report can get the stock going again. BUY
U.S. Bancorp (USB)
Yield 3.0%
The regional bank stock had a nice move between the middle of September and mid-October. But it has since been bouncing around near the high point of the recent range. Earnings disappointed the market as the bank didn’t realize higher net interest income in the quarter because rates didn’t move higher until the very end. It may go sideways for a while, but I like the bank’s prospects over the intermediate term. HOLD
Xcel Energy Inc. (XEL)
Yield 2.8%
I like this alternative energy utility stock in both the short and long terms. The is a great way for conservative investors to play the huge growth in alternative energy. XEL had been a stellar performer until investors forgot about alternative energy in the pandemic recovery as other long-neglected sectors got hot. But it should be favored again when things normalize. In the short term, the stock was purchased near the bottom of the recent range. It should get a nice bounce even before it comes back into favor. BUY
Existing Call Trades
Sell USB November 19th $60 calls at $2.30 or better
The stock seems to have run out of gas right around the strike price. The calls are currently selling well below the target price at 1.55. I don’t expect the stock to do much over the next couple of weeks. It might be a close one to see if it closes above the 60 strike price on expiration.
Sell OKE November 26th $65 calls at $2.25 or better
The rally in the stock has petered out over the last couple of weeks. We sold the calls near the high, but the stock has dipped below the strike price to 64 per share and the calls are below the target price at 1.50 per call. The timing looks good as the rally has stalled.
Sell KKR December 17th $75 calls at $3.50 or better
This stock has been relentless. It finally pulled back a little after a big run but has again resumed the rally. The stock is 4 above the strike price at 79 per share and it reported earnings. The rally could continue or the stock could pull back after the report. We’ll see.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 11/1/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 1/13/2021 | 15.52 | 16.18 | 17.00 | 8.90% | 12.05% |
| Enterprise Product Partners | EPD | 3/17/2021 | 23.21 | 22.80 | 25.00 | 7.89% | 4.44% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 60.78 | 57.00 | 3.03% | 16.26% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 134.81 | 140.00 | 2.04% | 1.09% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 64.14 | 60.00 | 5.83% | 26.17% |
| One Liberty Properties, inc. | OLP | 7/28/21 | 30.37 | 31.74 | 33.00 | 5.76% | 6.03% |
| KKR & Co., Inc. | KKR | 8/25/21 | 64.52 | 77.65 | 70.00 | 0.75% | 20.35% |
| Xcel Energy Inc. | XEL | 10/12/21 | 63.00 | 64.50 | 67.00 | 2.84% | 2.38% |
| FS KKR Capital Corp. | FSK | 10/27/21 | 22.01 | 21.57 | 24.00 | 11.84% | -2.00% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 11/1/21 | Sell To Price or Better | Total Return |
| USB Nov 19 $60 call | USB211119C00060000 | Sell | 9/24/21 | 2.30 | 1.55 | 2.30 | 4.30% |
| OKE Nov 26 $65 call | OKE211126C00065000 | Sell | 10/20/21 | 2.25 | 1.50 | 2.25 | 4.28% |
| KKR Dec 17 $75 call | KKR211217C00080000 | Sell | 10/26/21 | 3.50 | 4.60 | 3.50 | 5.42% |
| SOLD STOCKS | |||||||
| Security | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | 87.82 | 9/18/20 | 100.00 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | 89.14 | 9/18/20 | 95.00 | 7.30% |
| U.S. Bancorp | USB | Called | 7/22/20 | 36.26 | 9/18/20 | 38.00 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | 41.92 | 10/16/20 | 45.00 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | 82.41 | 10/16/20 | 88.00 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | 200.56 | 11/20/20 | 200.00 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | 91.04 | 12/31/20 | 100.00 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | 18.14 | 1/15/21 | 20.00 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | 39.66 | 1/15/21 | 40.00 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | 44.68 | 1/15/21 | 45.00 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | 26.79 | 2/19/21 | 28.00 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | 53.70 | 3/26/21 | 60.00 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | 85.69 | 4/1/21 | 96.00 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | 47.98 | 6/18/21 | 55.00 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | 149.17 | 7/16/21 | 155.00 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | 73.76 | 9/17/21 | 80.00 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | 50.63 | 10/15/21 | 55.00 | 11.65% |
| EXPIRED OPTIONS | |||||||
| Security | In/out money | Sell Date | Sell Price | Exp. Date | $ Return | Total % Return | |
| IIPR Jul 17 $95 call | out-of money | 6/3/20 | 3.00 | 7/17/20 | 3.00 | 3.40% | |
| MO Jul 31 $42 call | out-of-money | 6/17/20 | 1.60 | 7/31/20 | 1.60 | 4.03% | |
| ABBV Sep 18 $100 call | out-of-money | 7/15/20 | 4.60 | 9/18/20 | 4.60 | 5.05% | |
| IIPR Sep 18 $100 call | in-the-money | 7/22/20 | 5.00 | 9/18/20 | 5.00 | 5.69% | |
| QCOM Sep 18 $95 call | in-the-money | 6/24/20 | 4.30 | 9/18/20 | 4.30 | 4.82% | |
| USB Sep 18 $37.50 call | in-the-money | 7/22/20 | 2.00 | 9/18/20 | 2.00 | 5.52% | |
| BIP Oct 16 $45 call | in-the-money | 9/2/20 | 1.95 | 10/16/20 | 1.95 | 4.65% | |
| SBUX Oct 16 $87.50 call | in-the-money | 10/16/20 | 3.30 | 10/16/20 | 3.30 | 4.00% | |
| V Nov 20 $200 call | in-the-money | 9/22/20 | 10.00 | 11/20/20 | 10.00 | 4.99% | |
| ABBV Dec 31 $100 call | in-the-money | 11/18/20 | 3.30 | 12/31/20 | 3.30 | 3.62% | |
| EPD Jan 15 $20 call | in-the-money | 11/23/20 | 0.80 | 1/15/21 | 0.80 | 4.41% | |
| MO Jan 15 $40 call | in-the-money | 11/25/20 | 1.90 | 1/15/21 | 1.90 | 4.79% | |
| USB Jan 15 $45 call | in-the-money | 11/25/20 | 2.00 | 1/15/21 | 2.00 | 4.48% | |
| BGS Feb 19 $27.50 call | in-the-money | 12/11/20 | 2.40 | 2/19/21 | 2.40 | 8.96% | |
| VLO Mar 26 $60 call | in-the-money | 2/10/21 | 6.50 | 3/26/21 | 6.50 | 12.10% | |
| CVX Apr 1 $95.50 call | in-the-money | 2/19/21 | 4.30 | 4/1/21 | 4.30 | 5.02% | |
| AGNC Jun 18 $17 call | out-of-money | 4/13/21 | 0.50 | 6/18/21 | 0.50 | 3.21% | |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | 3.00 | 6/18/21 | 3.00 | 6.25% | |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | 2.80 | 6/18/21 | 2.80 | 5.24% | |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | 8.00 | 7/16/21 | 8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |
| BIP Oct 15 $55 call | in-the-money | 9./01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |