Profit in a Changing and Unpredictable Market
This market has confounded a lot of people over the past few years. It probably won’t turn easily predictable in the next year either.
The market crashed more than 30% when the pandemic hit and the government crashed the economy with strict lockdowns. But then stocks mounted an amazing recovery that began shortly after the lockdowns began, even though they would continue for more than a year. Why did it crash because of lockdowns and then rally before the end was anywhere near?
Stocks fell into another bear market last year and the Fed raised the Fed Funds rate at the steepest pace in decades to fight off 40-year-high inflation. At the beginning of this year most pundits had forecasted more of the same in the first half of 2023. Instead, the S&P 500 rallied 19.5% in the first seven months of the year into a new bull market.
Individual market sectors have been as perplexing as the indexes. Last year, the worst performing market sector by far was technology. This year it is by far the best performing sector. Last year, energy was the best performing sector. In the first half of this year, it was the worst performing. But that previously beleaguered sector has made a strong comeback as oil prices are on the rise.
Other sectors like consumer discretionary stocks that had been among the worst sectors last year are among the best this year. Defensive sectors including health care and utilities that delivered stellar returns last year have been dogs this year. In fact, the utility sector has displaced energy as this year’s worst performing S&P 500 sector.
This year’s market rally has stalled as stocks are pulling back in the month of August. But a pullback is normal and even healthy after the S&P mounted a better than 30% rally from the low. Most pundits are now optimistic about the rest of this year as inflation has fallen, the Fed is about done hiking, and there is no recession in sight. Maybe the pundits are right. But as the past several years illustrate, you never know.
The last few years have also illustrated a tendency for downtrodden stock sectors to rise from the canvas and become among the market’s best performers. Many utility stocks are currently near multi-year lows. But not because of the operational performance of the companies, which has largely remained solid. It’s mostly because of high interest rates, that may be peaking, and the mood of investors so far this year, which always changes.
Utilities are dirt cheap in an expensive market. They are also stellar relative performers in a slowing economy. But they are likely to rise from the current dark depths even if the economy remains buoyant. Sure, the stocks could continue to flounder for longer. But it’s a great bet that these stocks are a lot higher in six months or a year. In this issue, I highlight a utility stock that has been one of the best performing among its peers in the past that is ripe for plucking near a multi-year-low price.
What to Do Now
High call premiums have largely faded as the market has pulled back in August. Two covered calls, sold during good times, expired last Friday with one stock being called and the other closing just below the strike price. There is still a good call opportunity remaining which we are taking advantage of in this issue.
The more glaring opportunity this week is in stock purchases. Safe stocks in utilities and REITs have been so beaten down and unloved this year. They lagged in the first part of the year, didn’t participate in a broadened market rally, and have sold down with the rest of the market in August.
I tend to be contrarian and I like cheap stocks that have underperformed recently. Consider what has happened over the past couple of years. Not many investors wanted to buy technology stocks at the beginning of the year after they had been dogs for a year. But that would have been a great time to buy those stocks. In a similar vein, not many investors want safe stocks now, as they have been this year’s worst performers.
The portfolio has safe stocks in utility NextEra Energy (NEE) and legendary income REIT Realty Income (O). Both stocks are wallowing very near multi-year lows despite the strong market this year. Yet the operational performance has been solid. And both NEE and O have strong track records of performance.
The market reinvents itself and changes personality all the time. This year it invented a market that doesn’t like utilities or safe REITs. But these stocks are dirt cheap and among the best stocks to own if the economy does turn south in the quarters ahead. With a longer-term outlook, it’s a great time to buy these stocks if you don’t own them already.
There is also a new addition highlighted below that has had similar abysmal performance. These three stocks are unlikely to stay this beaten down regardless of what the market does in the months ahead. Sure, the stocks could flounder for a while longer. But I doubt very much that you will regret buying them a year from now.
Monthly Recap
July 25
Purchased AbbVie Inc. (ABBV) - $141.63
Sold OKE Sep 15 $65 calls at $3.20
August 8
Sold Star Bulk Carriers Corp. (SBLK)
August 18
V August 18 $235 calls at $9.00 – Expired
GSL August 18 $20 calls at $1.25 – Expired
Visa Inc. (V) stock – Called
August 22
Buy Xcel Energy inc. (XEL)
Sell HES October 20 $155 calls at $9.00 or better
Featured Actions: Buy Xcel Energy (XEL)
Yield: 3.6%
XEL was held twice before in the portfolio. The first position was held for seven months from October 2021 through late May of 2022. In that time, it provided a 17.42% return with appreciation, dividends, and one covered call. The second position was held for three months from October of 2022 until January of 2023. The position provided a 12.66% return with one covered call after it was called at 65 per share (currently 58). The solid returns were made in mostly a bear market environment.
Xcel Energy provides all the defensive and recession-resistant advantages of most utilities plus exposure to the fast-growing and highly sought-after alternative energy market. It has the reliability of a utility plus much more growth than average from its sizable clean energy business.
Xcel is a regulated electric and natural gas utility serving 3.7 million electric customers and 2.1 million natural gas customers in eight states, primarily in the northern and southwestern U.S. It is also one of the largest renewable energy providers in the U.S. with about 30% of electricity sales generated from alternative energy sources.
Alternative energy is what separates XEL from the utility pack and makes it a much better investment. It enables investors to play defense and offense at the same time. You get stable earnings and low volatility along with exposure to one of the most exciting and fast-growing areas of the market.
Here are some other things to like about the stock.
- Long-term EPS growth 5% - 7%
- Annual dividend growth 5% - 7%
- Dividend payout ratio 60% - 70%
- Credit ratings in the A range
Results support the fact that Xcel is an excellent utility stock. XEL produced average annual returns of about 12% for the last 10 years. That’s far better than its peer group over the same time. But that number is after the stock had a steep plunge recently.
While the longer-term trajectory looks excellent, it’s really the recent market action that prompts the recommendation. The stock has gotten very cheap because of near-term circumstances and market gyrations that are unlikely to last. XEL had historically not only outperformed the utility sector but the overall market as well. It’s now near a multi-year low and can perform in a troubled market.
Sell HES October 20 $155 calls at $9.00 or better
Expiration date: October 20
Strike price: $155
Call price: $9.00
Hess Corporation (HES)
Oil prices had an impressive spike higher over a recent seven-week period because of strong demand and limited supply as OPEC+ and Saudi Arabia have cut production and U.S. inventories have dwindled. Prices could go higher in the fall if the economy remains strong. But China’s economy is sputtering and there could be a slowdown in the U.S. Prices could go either way. But the action so far has provided the basis for a high income, and that’s the main objective of this portfolio.
Here are the three scenarios.
1. The stock closes above the $155 strike price at expiration.
Call premium: $9.00
Dividends: $0.875
Appreciation: $22.50 ($155 strike price minus $132.50 purchase price)
Total: $32.38 (total return will be 24.4% in 4 ½ months)
2. The stock price closes below but near our $45 strike price.
Call premium: $9.00
Dividends: $0.875
Total: $9.88 (total income of 7.5% in 4 ½ months)
3. The stock price declines.
There will be $9.88 in income to offset the decline. Plus, the original purchase price was more than $20 per share below the strike price.
Portfolio Recap
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 | $110.10 | $130.00 | 2.91% | -14.25% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $19.70 | NA | 7.61% | -12.86% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $32.75 | $35.00 | 1.53% | -14.89% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $34.77 | $38.00 | 5.15% | 3.36% |
| ONEOK Inc. | OKE | 3/28/23 | $60.98 | $65.60 | NA | 5.82% | 10.70% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $67.83 | $85.00 | 2.76% | -12.29% |
| Hess Corporation | HES | 6/6/23 | $132.25 | $155.56 | $140.00 | 1.12% | 18.01% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $56.90 | $62.00 | 5.39% | -4.66% |
| Digital Realty Trust | DLR | 7/18/23 | $117.31 | $212.34 | $125.00 | 4.02% | 3.44% |
| AbbVie Inc. | ABBV | 7/25/23 | $141.63 | $150.14 | $150.00 | 3.94% | 6.01% |
| Xcel Energy Inc. | XEL | 8/22/23 | $58.19 | $65.00 | 3.57% | ||
| Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Initial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| OKE $65 Sep 15th call | OKE230915C00060000 | Sell | 7/25/23 | $3.20 | $1.94 | $3.20 | 4.92% |
| HES $155 Oct 20th call | HES231020C00155000 | Sell Pending | $8.70 | $9.00 | |||
| as of close on 8/18/2023 | |||||||
| SOLD STOCKS | |||||||
| x | 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 | 4/14/22 | $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 | 1/20/23 | $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% |
| Brookfield Infrastructure Cp. | BIPC | Called | 11/9/22 | $42.43 | 7/21/23 | $45 | 8.72% |
| Star Bulk Carriers Corp. | SBLK | Sold | 6/1/22 | $33.30 | 8/8/23 | $18 | -31.38% |
| Visa Inc. | V | Called | 12/22/21 | $217.16 | 8/18/23 | $235 | 9.16% |
| 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 | 9/1/21 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24/21 | $2.30 | 11/19/21 | $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 | 7/20/22 | $11.75 | 9/16/22 | 11.75 | 8.73% | |
| V Mar 17th $220 call | out-of-money | 1/24/23 | $12.00 | 3/17/23 | $12.00 | 5.51% | |
| OKE May 19th $65 call | out-of-money | 4/11/23 | $2.70 | 5/19/23 | $2.70 | 4.43% | |
| V Jun 2 $230 call | out-of-money | 4/21/23 | $10.50 | 6/2/23 | 10.5 | 4.82% | |
| BIPC $45 July 21st call | in-the-money | 5/23/23 | $3.25 | 7/21/23 | $3.25 | 7.66% | |
| V $235 Aug 18th call | in-the-money | 7/11/23 | $9.00 | 8/18/23 | $9.00 | 4.13% | |
| GSL $20 Aug 18th call | out-of-money | 7/11/23 | $1.25 | 8/18/23 | 1.25 | 5.00% | |
AbbVie Inc. (ABBV)
Yield: 3.9%
The cutting-edge biopharmaceutical company stock had been having a bad year as its number one drug Humira’s U.S. patent expired. But since the middle of July, ABBV is up 13% and holding near the recent high despite the down market so far in August. The company reported earnings that beat on both earnings and revenue and raised guidance for the year. The report emboldens the notion that the revenue drop from the Humira patent expiration will be very temporary and AbbVie will turn the corner sooner than expected. BUY
AbbVie Inc. (ABBV)
Next ex-div date: October 14, 2023, est.
Digital Realty Trust (DLR)
Yield: 4.0%
DLR was one of the very few stocks on the market and in the portfolio that actually gained a little ground over the past couple of negative weeks for the market. Digital reported better-than-expected earnings because of strong data center demand and raised over $2 billion by selling joint venture assets. The move strengthens the balance sheet and secures the dividend. Now the REIT is poised to benefit from accelerating data center demand growth prompted by the AI craze. The strong down market performance in encouraging and the stock could have nice upside if the market rally reignites in the fall. BUY
Digital Realty Trust (DLR)
Next ex-div date: September 14, 2023
Global Ship Lease, Inc. (GSL)
Yield: 7.6%
The container shipping company stock had a strong spike higher since the beginning of June. The down market has gotten to the stock somewhat and it has pulled back below the 20 per share level. But it has moved well off the bottom and the higher range is likely to stay. Earnings beat estimates with strong earnings growth despite tougher comparisons after greatly expanding its fleet two years ago. The company still has higher than current market rates under long-term contracts and the ships chartered at new rates have higher rates than existed pre-Covid. HOLD
Global Ship Lease, inc. (GSL)
Next ex-div date: August 22, 2023
Hess Corporation (HES)
Yield: 1.1%
Oil prices hit the highest level since last year on strong demand and limited supply. Exploration and production company stock HES has moved higher along with oil. Energy prices have leveled off so far in August, but prices may start moving up again in the fall, as many predict. Hess’ high margins give it powerful leverage in a rising energy price environment. We’ll see how much further this uptrend can take the stock. BUY
Hess Corporation (HES)
Next ex-div date: September 14, 2023, est.
Intel Corp, (INTC)
Yield: 1.5%
August has been a reckoning for technology stocks. The sector has plunged as interest rates are more likely to remain elevated amid the better-than-expected performance of the economy. However, the pullback provides a necessary consolidation after a big run-up and technology stocks could be reignited with Nvidia (NVDA) earnings this week, as this event prompted the big rally last quarter. Also, Intel performance is turning the corner as earnings beat estimates and the company returned to profitability. The company has a promising future as it has invested heavily in chips in high-growth areas and insiders have been buying heavily into the stock. BUY
Intel Corporation (INTC)
Next ex-div date: November 4, 2023, est.
NextEra Energy, Inc. (NEE)
Yield: 2.8%
The weakness continues. This combination regulated and clean energy utility stock just hit a new 52-week low. The utility sector remains under pressure. It was weak even when the rally broadened out earlier this summer and has continued being weak as growth stocks have pulled back in August. The market has hated utilities this year. But that situation is likely to change and operational performance is solid. The utility grew earnings 8.6% in the second quarter and 11% in the first half versus the same periods last year. It also has predictably solid earnings going forward because of a considerable project backlog. NEE has historically outperformed the overall market and is sitting unloved at the 52-weak low. BUY
NextEra Energy, Inc. (NEE)
Next ex-div date: August 29, 2023
ONEOK, Inc. (OKE)
Yield: 5.8%
Energy came back in a big way this spring and summer, although it has leveled off this month. OKE had been trending higher since May before the August interruption. The midstream energy company reported earnings that beat on EPS and raised earnings guidance for the year. The market was impressed. We’ll see if OKE can salvage the upside rally from here. Longer term the stock looks solid as the company is expected to grow revenue by an average of 10% per year over the next three years. HOLD
ONEOK Inc. (OKE)
Next ex-div date: October 28, 2023, est.
Realty Income Corp. (O)
Yield: 5.2%
It isn’t only hard times for utility stocks. Conservative REITs remain out-of-favor as well. This legendary monthly income stock if flirting very close to the 52-week low, last achieved when the market was in the throes of the bear last October. But earnings were solid with a stellar 99% occupancy rate for its properties and an additional $3.1 billion invested in the quarter in 710 properties. This is now a very cheap and high yielding stock with an excellent historical track record in a very uncertain market and economy. BUY
Realty Income Corporation (O)
Next ex-div date: August 31, 2023
Qualcomm Corp. (QCOM)
Yield: 2.6%
Not only has it been an ugly market for technology stocks this month, but Qualcomm reported earnings results that the market hated. Earnings were down 37% year over year and revenues fell 23%. It’s because of lower smartphone sales as the 5G upgrade cycle ended and economic conditions tightened. However, smartphones sales may be close to bottom as they are expected to increase in 2024 and Qualcomm is expected to resume earnings and revenue growth. This slump was expected and that’s why QCOM has underperformed. But it is cheap now. BUY
Qualcomm Inc. (QCOM)
Next ex-div date: August 30, 2023
The Williams Companies, Inc. (WMB)
Yield: 5.1%
The midstream energy company reported earnings that surpassed estimates and the stock got a further boost on the news. Volumes of throughput were solidly higher, and earnings grew 8%. That’s a far cry from the 30%-plus earnings growth of last quarter, but this lull in acquisitions coming online was expected. It’s solid growth under the circumstances. In addition, recent expansion and acquisition activity bodes well for growth in 2023 and 2024 beyond what was expected. The stock is now up over 20% since the end of May and is within 2% of the 52-week high. BUY
The Williams Companies, Inc. (WMB)
Next ex-div date: September 8, 2023
Existing Call Trades
V August 18 $235 calls at $9.00 – Expired
Call premium: $9.00
Dividends: $2.48
Appreciation: $17.04 ($235 strike price minus $217.96 purchase price)
Total: $28.52 (total return of 13% in 20 months, but 23.4% counting the previous calls sold for $12.00 and $10.50)
Visa stock returned a modest 9.16% since being purchased in the portfolio in December of 2021. It was right before the bear market year and the S&P 500 returned -4.4% over the same period. But a solid return was made by selling three separate calls against the position for $12.00, $10.50, and $9.00. The stock was called on Friday as it closed above the strike price (238.17 versus 235). But the appreciation, dividends, and three covered calls provided a 23.4% return in 20 months.
GSL August 18 $20 calls at $1.25 – Expired
Call premium: $1.25
Dividend: $1.88
Total: $3.13 (total income of 12.5% in 17 months)
Timing has also been a problem for this container shipping company stock that was purchased at the beginning of 2022. This was the first call sold against the position and the stock closed just under the strike price and was not called. GSL has been behaving better and seems to have found a higher range. There should be more covered call opportunities for this stock.
Sell OKE Sep 15 $65 calls at $3.20 or better
The midstream energy company stock was extremely strong until the market pulled back in August. However, it held up very well on a relative basis and remains slightly above the strike price with almost four weeks to go before option expiration.
Income Calendar
Ex-Dividend Dates are in RED and italics. Dividend Payments Dates are in GREEN. Confirmed dates are in bold, all other dates are estimated. See the Guide to Cabot Income Advisor for an explanation of how dates are estimated.
The next Cabot Income Advisor issue will be published on September 26, 2023.
