An Important Inflation Number on the Way
It’s a big week. The March Consumer Price Index (CPI) report comes out on Wednesday. The number may determine the short-term course of the market.
Stocks have trended higher over the past month as the banking situation has so far tempered the Fed without any offsetting crisis. There now seems to be a greater likelihood of a recession later this year, but investors are also pricing in Fed rate cuts in the second half. That’s the dicey part.
Sure, a recession could make the Fed start lowering rates if things are bad enough. But the Fed has consistently stated that it intends to leave rates high and not cut before the end of the year. Investors don’t believe them. But a worse-than-expected inflation report on Wednesday could change investors’ optimism, and those rate cuts could get priced out of stocks.
But even with a good inflation report, there is still the issue of a recession looming in the quarters ahead. That should sober investors at some point. It’s a catch-22. Either there will be a recession or stubborn inflation and a still hawkish Fed. It’s difficult to see how stocks muster a sustainable rally until investors can see beyond those issues.
It’s a good time to remain defensive and grab income when we can get it. In this update, I highlight a covered call in one recently added position ONEOK, Inc (OKE). It’s worth noting that OKE has been in the portfolio twice before and there have been a total of four calls sold on it for a call premium income of more than 20%, based on the purchase price, not including appreciation and dividends.
Trades This Month
March 14th
Medical Properties Trust - Rating change “BUY” to “HOLD”
March 17th
V March 17th $220 calls at $12.00 - Expired
March 21st
SOLD - Medical Properties Trust, Inc. (MPW) - $7.89
March 28th
Purchased ONEOK, Inc. (OKE) - $60.98
April 11th
Sell OKE May 19th $65 calls at $2.70 or better
TRADE ALERT: Sell OKE May 19th $65 calls at $2.70 or better
Expiration date: May 19th
Strike price: $65
Call price: $2.70
ONEOK, Inc. (OKE)
This is a solid midstream energy company that returned 16.46% in the 2022 bear market and has a positive return YTD. The company is well equipped to handle both inflation, as it has automatic inflation adjustments built into its contracts, and recession, as demand for oil and gas should remain relatively stable given the global supply issues. But this is a highly uncertain market, and it is prudent to get more income where it can be had.
Here are the three scenarios.
1. The stock closes above the $65 strike price at expiration.
Call premium: $2.70
Dividends: $0.955 (May 16th)
Appreciation: $4.02 ($65 strike price minus $60.98 purchase price)
Total: $7.675 (total return will be 12.6% in less than 3 months)
2. The stock price closes below but near our $65 strike price.
Call premium: $2.70
Dividend: $0.955
Total: $3.66 (total income of 6.0% in less than 3 months)
3. The stock price declines.
There will be $3.66 in income to offset the decline. Plus, the original purchase price was $4 below the strike price.
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.3%
The infrastructure juggernaut has been bouncing around to nowhere since the end of 2020. The uninspired returns aren’t that bad considering it has been a bear market. The stock had been held back more recently by a strong dollar and higher lending rates, but those things have been receding and the stock might be on the move. BIPC recently hit the highest price level since last fall and is up about 20% YTD. The stock is now right around the midpoint of its 52-week price range and should be a solid holding amid inflation and/or recession. BUY
Global Ship Lease, Inc. (GSL)
Yield: 8.1%
The container shipping company pulled back over the past couple months after soaring to the highest price since last spring. GSL has often pulled back like this in the past after a price surge. But it’s still up about 13% YTD. Earnings were strong and the company should continue to benefit from the opening of the Chinese economy in the months ahead. The longer-term supply/demand dynamic is positive for container shipping and the stocks may be in a longer-term bull market. GSL still sells at a cheap valuation. HOLD
Intel Corp, (INTC)
Yield: 1.5%
Things are certainly looking up for this beleaguered stock. INTC soared over 30% in the month of March and has broken out to the highest level since last summer. Part of it is a rally off the bottom as the stock sunk to book value after lousy earnings and guidance and a dividend cut. Intel is still a powerful industry player and its recent attempts to catch up to its competitors should succeed to a least some degree over time. The company also may have fixed its supply chain problems, which would prompt a sooner-than-expected earnings recovery. HOLD
ONEOK, Inc. (OKE)
Yield: 5.8%
This midstream energy stock had been pulled down in the wake of the banking situation and those volatile markets. But the stock was purchased cheaply in the portfolio and has already been moving steadily higher. OKE continues to post strong earnings and is well-suited to endure inflation and/or recession. The stock has already popped back above 65 per share and should be poised to move still higher. BUY
Realty Income Corp. (O)
Yield: 4.9%
The legendary income REIT is also recovering from a bout of weakness for similar reasons. Things are solid as the REIT grew profits by 9.2% year over year, added $9 billion in new properties for the year, and reported the highest occupancy rate in the last 20 years at 99%. This is a popular and defensive income stock that should hold its own with inflation and in the event of a slowing economy or recession. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield: 24.6%
Like GSL, SBLK has gotten new life this year. SBLK moved up a lot in February despite it being a tough month for the overall market. The shipping company pulled back in March, which is not unusual for this stock after a surge. It is benefiting from more Chinese traffic as the country opens again. Lower shipping rates and a slower global economy have already been factored into the stock and it is likely still the early innings of a multiyear positive cycle for shipping. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.4%
This is a great long-term stock of a company with a huge share of mobile 5G chips and strong exposure to some of the fastest-growing areas in technology. Meanwhile, it sells at a very cheap valuation by historical standards. QCOM has been pushed around by the sector since it’s been under pressure but there has been new life lately. Inflation is coming down and interest rates are falling, and technology is the best-performing sector YTD with the group up over 20%. At some point this year, the market should start sniffing out the recovery and QCOM can make up for lost time fast when it moves. HOLD
Visa Inc. (V)
Yield: 0.8%
V is tied to the fortunes of the more cyclical stocks in the near term. But it tends to outperform that group. It held up nicely in a very tough 2022 with a -3.4% return for the year, it’s up 25% since the September low, and it has a positive return YTD. Of course, it could be under pressure if the economic situation deteriorates. But the stock is still relatively cheap, and it should fly when the market eventually senses the end of this cycle and the next recovery. HOLD
The Williams Companies, Inc.
Yield: 6.0%
WMB has been a struggling stock this year because of natural gas prices, which have crashed. Although the company is not highly levered to energy prices, it is affected by turbulence in its industry. Prices have fallen largely because of the unusually warm winter temperatures throughout the country and the world. Demand for the fuel has been far less than anticipated and stockpiles have built up. But it is a temporary problem for a fuel source that should own the next decade. And WMB has gotten cheap. BUY
CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $123.00 | NA | 2.44% | -4.87% |
| Visa Inc. | V | 12/22/21 | $217.96 | $225.99 | NA | 0.80% | 4.69% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $18.41 | NA | 8.10% | -20.22% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $20.66 | NA | 24.65% | -23.86% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $32.81 | NA | 1.52% | -15.38% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $29.65 | $38.00 | 6.04% | -13.14% |
| Brookfield Infrastructure Cp. | BIPC | 11/9/22 | $42.43 | $46.09 | $46.00 | 3.32% | 10.44% |
| ONEOK Inc. | OKE | 3/28/23 | $60.98 | $65.69 | $63.00 | 5.82% | 7.72% |
EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| OKE $65 May 19th call | OKE230519C00065000 | Sell pending | $2.67 | $2.70 | 4.43% | ||
| as of close on 4/06/2023 | |||||||
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 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
| AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
| ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
| KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
| Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
| U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
| Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14.2022 | $24 | 11.25% |
| FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 | 13.58% |
| Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 | 12.66% |
| Innovative Industrial Props. | IIPR | Sold | 3/23/22 | $196.31 | 7/20/22 | $93 | -51.23% |
| One Liberty Properties | OLP | Sold | 7/28/21 | $30.37 | 8/24/22 | $25 | -12.94% |
| ONEOK, Inc. | OKE | Called | 5/25/22 | $65.14 | 1/20/23 | $65 | 2.66% |
| Xcel Energy, Inc. | XEL | Called | 10/26/22 | $62.57 | 1/20//2023 | $65 | 4.67% |
| Realty Income Corp. | O | Called | 9/28/22 | $60.37 | 2/17/23 | $63 | 5.41% |
| Medical Properties Trust | MPW | Sold | 1/24/23 | $13.22 | 3/21/23 | $8 | -38.00% |
| 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% | |
| USB Nov 19 $60 call | out-of-money | 9/24.2021 | $2.30 | 11/19.2021 | $2.30 | 4.30% | |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |
| QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% | |
| OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% | |
| OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% | |
| USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% | |
| VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% | |
| EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% | |
| FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% | |
| XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% | |
| SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% | |
| OKE Oct 21st $65 call | out-of-money | 8/24/22 | $3.40 | 10/21/22 | $3.40 | 5.22% | |
| OKE Jan 20th $65 call | In-the-money | 11/25/22 | $3.70 | 1/20/23 | $3.70 | 5.68% | |
| XEL Jan 20th $65 call | in-the-money | 11/25/22 | $5.00 | 1/20/23 | $5.00 | 7.99% | |
| O Feb 17th $62.50 call | in-the-money | 12/28/22 | $3.00 | 2/17/23 | $3.00 | 4.97% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20.2022 | $11.75 | 9/16/22 | 11.75 | 8.73% | |
| V Mar 17th $220 call | out-of-money | 1/24/23 | $12.00 | 3/17/203 | $12.00 | 5.51% | |