Stocks Hang Tough as Recession Looms
The market is changing. The risk is shifting from more Fed rate hikes and inflation to a growing possibility of recession in the quarters ahead. The math is changing and so is market rotation.
At the same time, earnings season is here, and we are likely in an earnings recession already. Average S&P 500 earnings shrunk 4% last quarter and are forecast to fall 5% this quarter. Much of that expectation is already reflected in prices and investors will be carefully watching the guidance for future quarters. If that is negative, companies that can continue to grow earnings and buck the trend should be at a premium.
Defensive stocks in utilities, healthcare and energy have been gaining strength. Technology has been the best performing sector YTD and may continue to outperform as interest rates and inflation continue to fall.
Defense should still be king over the next quarter as the economy likely continues to weaken and investors continue to move toward safety. The market has been somewhat resilient and is still up almost 8% YTD despite inflation, the Fed, and possible recession. But the market also may have another ugly downturn left in the tank before this bear market is over.
The portfolio has been focusing on more defensive positions as well as covered call sales after a rally in the market and the stock. In this update, I highlight another call in portfolio position Visa (V).
Trades This Month
March 21
SOLD - Medical Properties Trust, Inc. (MPW) - $7.89
March 28
Purchased ONEOK, Inc. (OKE) - $60.98
April 11
SOLD OKE May 19 $65 calls at $2.70
April 18
Sell V June 2 $230 calls at $10.50 or better
TRADE ALERT: Sell V June 2 $230 calls at $10.50 or better
Expiration date: June 2
Strike price: $230
Call price: $10.50
Visa Inc. (V)
I like V for the longer term. But the stock is at its highest price level in nearly two years and the direction of the market over the next month or two looks very shaky. It makes sense to lock in a high income while stocks are high in this market. It is also well worth pointing out that the portfolio sold an earlier call on V for $12 that expired last month below the strike price. The two calls plus the dividends make a very respectable income for the position and there may be more opportunities down the road.
Here are the three scenarios.
1. The stock closes above the $230 strike price at expiration.
Call premium: $10.50
Dividends: $2.47
Appreciation: $12.04 ($230 strike price minus $217.96 purchase price)
Total: $25.01 (total return will be 11.5% in 18 months, and 17% in 18 months if you sold the previous call)
2. The stock price closes below but near our $230 strike price.
Call premium: $10.50
Dividend: $2.47
Total: $12.97 (total income of 6.0% in 18 months, and 11.5% with previous call)
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: 3.4%
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: 7.3%
The container shipping company stock has been moving higher, up more than 10% in a little over a week. GSL was strong in February and hit the highest price level since last spring. It pulled back in March but has made up all of March’s losses in the last 10 days. The company should have a bright future as the longer supply/demand dynamic for ships is excellent. The company also has consistently rising earnings and future guidance and sells at a significant discount. But the stock also has a high beta and would likely be under some pressure if the market turns south again. HOLD
Intel Corp, (INTC)
Yield: 1.6%
INTC has leveled off this month but not before an impressive move off the low. The stock price soared over 30% in the month of March and broke 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 appears to have solved its production issues, which bodes very well for new products on the launchpad and a sooner return to profitability. HOLD
ONEOK, Inc. (OKE)
Yield: 5.7%
After pulling back in March, OKE is up 15% in less than a month. The market turbulence following the bank failures has prompted a flight to safety. Midstream energy companies have benefited from that flight as well as some investor optimism about a sooner end to Fed rate hikes. 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 may be poised to move still higher. BUY
Realty Income Corp. (O)
Yield: 5.0%
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: 23.0%
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. It has been trending higher recently but it too is vulnerable to a down market. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.7%
The chip company stock recently raised the quarterly dividend to $0.80 per share from $0.75. 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. But QCOM is also vulnerable to the overall technology sector in the near term. It is likely that a tech recovery should come sooner than an overall market recovery as interest rates and inflation recede in a slowing economy. Plus, QCOM can move up fast when the sector eventually really recovers. 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. It should be higher by the end of the year but there is a strong chance it pulls back somewhat after moving to recent highs (hence our new covered call trade). HOLD
The Williams Companies, Inc. (WMB)
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
Existing Call Trades
Sell OKE May 19 $65 calls at $2.70 or better
OKE has moved about 10% higher since being added to the portfolio. The stock should have the right stuff for inflation and or recession, but it has been very bouncy. The portfolio has already sold four calls on this same stock on earlier occasions, and it can provide an excellent vehicle for high income going forward. The calls were above the targeted price for much of the time in the days following the Trade Alert but have pulled back so far this week.
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 | $120.16 | NA | 2.66% | -7.07% |
| Visa Inc. | V | 12/22/21 | $217.96 | $234.02 | NA | 0.77% | 8.41% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $20.43 | NA | 7.34% | -11.46% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $22.18 | NA | 22.99% | -18.26% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $31.89 | NA | 1.57% | -17.75% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $30.39 | $38.00 | 5.89% | -10.98% |
| Brookfield Infrastructure Cp. | BIPC | 11/9/22 | $42.43 | $45.05 | $46.00 | 3.40% | 7.95% |
| ONEOK Inc. | OKE | 3/28/23 | $60.98 | $67.03 | $63.00 | 5.70% | 9.92% |
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 | 4/11/23 | $2.70 | $2.75 | $2.70 | 4.43% |
| V $230 June 2nd call | V 230602C00230000 | Sell pending | $10.58 | $10.50 | 4.82% | ||
| as of close on 4/14/2023 | |||||||
| 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% | |