A Wild Year So Far
January was shaping up to be another stellar month for stocks. After dodging a bullet with a tame inflation report and the 10-year Treasury rate pulling well off the highest level in over a year, the S&P 500 closed last week 3.73% higher for the month. But stocks came crashing down on Monday.
The issue is a Chinese start-up is rattling faith in U.S. leadership and profitability in artificial intelligence (AI). China-based DeepSeek claims that its highly popular AI assistant performs equally as well as leading models at much cheaper prices and using far less data. It calls into question the anticipated demand growth for AI.
The claims, if true, raise the possibility that upstart newcomers can challenge leaders in AI. It also calls into question the enormous demand and forecast expenditures for the technology as well as the exorbitant stock prices of the current industry leaders.
The whole AI trade got hammered on Monday. And it isn’t just chip stocks, which are getting crushed, or technology. Everything AI-related took a beating. The red-hot electricity stocks are also getting hammered. The generation of AI requires enormous amounts of electrical power. In anticipation, certain utility stocks and natural gas stocks, which is the main fuel source that generates electricity, had been on fire. Stocks that had been benefitting fell hard Monday.
But the selloff is probably an overreaction. For one, you can’t necessarily believe the claims of some of these Chinese companies. Also, it’s one thing to copy an existing technology and another thing to create new technology. Even if the claims turn out to be mostly true, it certainly doesn’t kill the AI catalyst. It might just sober it up a little bit, which is probably overdue.
This is the problem with high-flying stocks. Any bad news gets dramatically amplified because euphoria is so easy to disappoint. The AI catalyst is still very real. But it may have gotten ahead of itself. A day like Monday was bound to happen.
Plus, many long-neglected defensive stocks are rallying. Healthcare and consumer staples stocks soared on Monday. Interest rate-sensitive stocks that already turned around with the falling interest rates over the past couple of weeks are also getting a boost. Monday was actually a very good day for several of the stocks currently in the Cabot Income Advisor portfolio.
In this issue, I highlight an opportunity in one of the best technology stocks on the market. It was riding high for good reasons, rapidly growing profits. Monday’s overreaction prompted the worst selloff of the stock in years. There is likely to be a bounce back and the stock can generate very high-priced calls.
What to Do Now
Good things are happening beneath the surface. Last week Trump got all the headlines. This week it’s all about the AI crash. But away from all the noise certain portfolio stocks that had been left behind for the last few months have come alive.
AGNC Investment Corp. (AGNC), Realty Income (O), Ally Financial (ALLY), and Toll Brothers (TOL) have risen 7%, 8%, 12%, and 14%, respectively, from recent lows earlier this month. AbbVie Inc (ABBV) rallied 4% on Monday alone. The healthcare, financial and energy sectors are all up around 5% in January. It may be that market returns are starting to even out a bit.
The recent pullback in interest rates could prompt a more prolonged rally in some of these sectors. Most of these stocks are still very reasonably valued and tend to hold up very well when the overall market has trouble. It’s still a good time to buy the stocks mentioned above.
It’s also worth mentioning the wisdom of selling covered calls. Several portfolio stocks have recently been called away at options expiration. The strategy of selling calls for additional income does sacrifice some appreciation potential. But we locked in a high income and still sold most stocks at an advantageous price. And markets can turn quickly. Some of the stocks that rose in the recent euphoria are coming back to the price where they were called or below.
It’s best to sell covered calls when the market is high. That way the stocks generate a high call premium and a good total return if called. Down markets are a good time to add stocks to the portfolio. That’s why I highlighted the stock below for purchase after the worst selloff in over a year.
Recent Activity
January 7
Sold CEG March 21st $260 call at $20 or better
Sold QCOM March 21st $160 call at $11 or better
NextEra Energy, Inc. (NEE) – Rating change – “HOLD” to “BUY”
January 14
Toll Brothers, Inc. (TOL) – Rating change “BUY” to “HOLD”
January 17
EPD Jan 17th $29.00 calls at $1.75 – EXPIRED
Enterprise Product Partners L.P. (EPD) – CALLED
January 21
Sell CQP March 21st $60 call at $3.00 or better
January 28
Buy Broadcom Inc. (AVGO)
Featured Action
Buy Broadcom Inc. (AVGO)
Few stocks have benefited from the artificial intelligence craze like AVGO has. In the spring of 2023, Nvidia (NVDA) reported blowout earnings thanks to demand for its AI chips, which blew away expectations. That’s when the AI craze got real in terms of bottom lines and stock prices. Other AI stocks also took off, including AVGO, which has more than doubled since.
Broadcom is a global technology infrastructure leader and an industry Goliath, with $51 billion in annual net revenues. It’s an icon of the technology revolution with roots that trace back over 50 years, to the old AT&T/Bell Labs. The company has many category-leading products in semiconductors and infrastructure software solutions.
Broadcom provides components that enable networks to operate together and communicate with each other, from the service provider all the way to the end user and device. The company is an early comer to the technology party, providing crucial infrastructure that enables other technologies that come along the way. The company is so entrenched in the infrastructure of today’s technology that 90% of internet traffic uses Broadcom’s systems.
Broadcom benefits from AI in a brilliant way. It makes generative AI chips. These chips don’t provide AI functions per se, but rather the technology that enables AI to connect to all other systems — which it must, to be of any use. The sheer volume increases from the new technology, as well as soaring demand for the next generations of its chips, should enable Broadcom to achieve a much higher level of profit growth for years to come.
Prior to this week, the price of AVGO had doubled over the last year and returned 300% since the spring of 2023. The company got a huge bump last year when it announced a 10-for-1 stock split. The stock also soared when the last earnings report in December knocked it out of the park.
Broadcom soundly beat expectations. But it was the positive AI comments by management that really juiced the stock. The company said demand for its AI chip (XPU) is booming and expects it to generate revenues between $60 billion and $90 billion by 2027. Revenue from the chip was $12.2 billion in fiscal 2024. The report captured the imagination of investors, and the stock soared 42% in the two days that followed and joined the “magnificent seven” stocks as the only stocks with market capitalization over $1 trillion.
While AVGO had not eclipsed the December peak, it hadn’t really pulled back. As of this past Friday’s close, it was still within 3% of the high. But the stock had a huge decline on Monday following the news about Chinese company DeepSeek. It was down 18% at midday on Monday.
I believe the selloff is overblown. Rarely has the price of AVGO experienced a significant decline in recent years. And price declines in the past have been good buying opportunities. The company has a rare niche where its infrastructure position is nearly impossible to duplicate. Revenues should continue to grow at a strong pace for years to come. And the stock can generate very high-priced calls.
Broadcom Inc. (AVGO)
Next ex-div date: March 19, 2025, est.
Portfolio Recap
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| AbbVie Inc. | ABBV | 12/17/24 | $175.38 | $170.30 | $200.00 | 3.85% | -1.97% |
| AGNC Investment Corp | AGNC | 9/24/24 | $10.47 | $9.68 | $12.00 | 14.88% | -2.85% |
| Ally Financial Inc. | ALLY | 11/26/24 | $39.42 | $39.01 | $45.00 | 3.14% | -1.04% |
| Broadcom Inc. | AVGO | 1/28/25 | $200.00 | $220.00 | 1.06% | ||
| Cheniere Energy Prtns. | CQP | 7/23/24 | $53.04 | $61.70 | $60.00 | 5.62% | 19.13% |
| Constellation Energy Corp. | CEG | 8/27/24 | $196.14 | $347.44 | $270.00 | 0.41% | 77.42% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $73.83 | $80.00 | 2.98% | -1.58% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $172.11 | $180.00 | 1.98% | 38.54% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $54.34 | NA | 5.83% | -1.33% |
| Toll Brothers, Inc. | TOL | 10/22/24 | $148.02 | $135.06 | NA | 0.60% | -8.59% |
| Open Recommendations | Ticker Symbol | Initial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| CEG Mar 21 $260 | CEG250321C00260000 | Sell | 1/7/25 | $20.00 | $89.02 | $20.00 | 10.20% |
| QCOM Mar 21 $160 call | QCOM250321C00160000 | Sell | 1/7/25 | $11.00 | $16.75 | $10.00 | 7.43% |
| CQP Mar 21 $60 call | CQP250321C00060000 | Sell | 1/22/25 | $3.00 | $2.85 | $3.00 | 5.66% |
| as of close on 1/25/2025 | |||||||
| 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% |
| Global Ship Lease, Inc. | GSL | Sold | 2/23/22 | $24.96 | 8/29/23 | $19 | -13.82% |
| ONEOK, Inc. | OKE | Called | 3/28/23 | $60.98 | 9/15/23 | $65 | 9.72% |
| Hess Corporation | HES | Called | 6/6/23 | $132.25 | 10/20/23 | $155 | 17.87% |
| Tractor Supply Company | TSCO | Sold | 9/26/23 | $203.03 | 11/28/23 | $200 | -1.02% |
| Digital Realty Trust | DLR | Called | 7/18/23 | $117.31 | 1/19/24 | $135 | 17.16% |
| Intel Corporation | INTC | Called | 7/27/22 | $40.18 | 1/19/24 | $43 | 9.76% |
| AbbVie Inc. | ABBV | Called | 7/25/23 | $141.63 | 3/15/24 | $160 | 15.11% |
| Marathon Petroleum Corp. | MPC | Called | 10/24/23 | $149.45 | 3/28/24 | $165 | 12.06% |
| The Williams Companies, Inc. | WMB | Called | 8/24/22 | $35.58 | 5/17/24 | $35 | 7.14% |
| Main Street Capital Corp. | MAIN | Called | 3/26/24 | $46.40 | 9/20/24 | $49 | 10.91% |
| Brookfield Infrastructure Cp. | BIPC | Called | 2/27/24 | $32.64 | 9/20/24 | $35 | 11.00% |
| American Tower Corp. | AMT | Called | 1/23/24 | $202.26 | 9/20/24 | $210 | 5.43% |
| ONEOK, Inc. | OKE | Called | 8/27/24 | $79.59 | 10/18/24 | $88 | 11.18% |
| Alexandria Real Estate Eq. | ARE | Sold | 12/19/23 | $129.54 | 11/19/24 | $108 | -12.82% |
| FS KKR Capital Corp. | FSK | Called | 4/23/24 | $19.42 | 12/20/24 | $20 | 14.06% |
| Enterpise Product Ptnrs. | EPD | Called | 2/27/24 | $27.61 | 1/17/25 | $29 | 12.60% |
| 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 | $10.50 | 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% | |
| OKE $65 Sep 15 call | in-the-money | 9/15/23 | $3.20 | 7/25/23 | $3.20 | 4.92% | |
| INTC $35 Oct 20th call | out-of-money | 9/8/23 | $3.78 | 10/20/23 | $3.78 | 9.41% | |
| HES $155 Oct 20th call | in-the-money | 9/8/23 | $9.00 | 10/20/23 | $9.00 | 6.81% | |
| DLR $135 Jan 19th call | in-the-money | 11/22/23 | $6.00 | 1/19/24 | $6.00 | 5.11% | |
| INTC $42.50 Jan 19th call | in-the-money | 11/29/23 | $3.50 | 1/19/24 | $3.50 | 8.71% | |
| ABBV $160 Mar 15th call | in-the-money | 1/10/24 | $7.00 | 3/15/24 | $7.00 | 4.94% | |
| MPC $165 Mar 28th call | in-the-money | 2/14/23 | $10.00 | 3/28/24 | $10.00 | 6.69% | |
| QCOM $200 July 19th call | out-of-money | 6/5/24 | $12.00 | 7/19/24 | $12.00 | 8.91% | |
| MAIN $49.4 Sep 20th Call | in-the-money | 6/27/24 | $2.00 | 9/20/24 | $2.00 | 4.31% | |
| BIPC $35 Sep 20th Call | in-the-money | 7/16/24 | $3.00 | 9/20/24 | $3.00 | 9.19% | |
| AMT Sep 20 $210 call | in-the-money | 7/30/24 | $15.00 | 9/20/24 | $15.00 | 7.42% | |
| OKE Oct 18 $87.50 call | in-the-money | 8/27/24 | $3.50 | 10/18/24 | $3.50 | 4.40% | |
| FSK Dec 20 $20 call | in-the-money | 10/25/24 | $0.95 | 12/20/25 | $0.95 | 4.89% | |
| CEG Dec 29 $260 call | out-of-money | 9/25/24 | $24.00 | 12/20/24 | $24.00 | 12.24% | |
| EPD Jan 17 $29 call | in-the-money | 11/12/24 | $2 | 1/17/25 | $2.00 | 6.34% | |
AbbVie Inc. (ABBV)
Yield: 3.8%
The future looks good for this biotech company. AbbVie is turning the corner from the Humira expiration as new drugs Skyrizi and Rinvoq are expected to generate $16 billion this year, replacing nearly all the peak Humira revenue alone. The company returned to slow revenue growth in the second half of 2024 and is expected to generate “robust” growth this year. There are also several drugs that should receive FDA approval this year. Revenues are expected to be $63.5 billion in 2025, eclipsing prior peak revenue of $60 billion. The company is already growing beyond the peak Humira years and should be poised for high returns with the patent cliff behind it. ABBV is nearly 20% below the 52-week high with room to run. BUY
AbbVie Inc. (ABBV)
Next ex-div date: April 15, 2025, est.
AGNC Investment Corp. (AGNC)
Yield: 14.9%
After wallowing since October, AGNC had a nice rebound over the past couple of weeks, up about 6%. The December inflation report was to Wall Street’s liking and interest rate-sensitive stocks rebounded. The gloomy interest rate expectations of the past few months had been pressuring the price. Hopefully, the improved interest rate outlook will last for a while. Spreads are still higher as the Fed Funds rate has already been cut 1% and longer rates are higher. AGNC should be set up for a much better 2025. BUY
AGNC Investment Corp. (AGNC)
Next ex-div date: January 31, 2025
Ally Financial Inc. (ALLY)
Yield: 3.1%
Earnings
The online bank reported better-than-expected earnings last week and Ally has moved more than 14% higher in the past two weeks. The bank reported lower loan loss provisions in the quarter after loan loss worries had held the stock back. ALLY was floundering badly along with most other financial stocks as a soaring interest rate narrative took hold. But it started to rally after big bank earnings were stellar and December inflation was OK, and the interest rate narrative improved. The good earnings report added fuel. Analysts are expecting earnings growth of 40% in 2025. BUY
Ally Financial Inc. (ALLY)
Next ex-div date: January 31, 2025
Cheniere Energy Partners, L.P. (CQP)
Yield: 5.6%
This high-flying, high-yielding liquid natural gas export partnership came off the high last week as the red-hot energy market got some sobering news. The much-anticipated Venture Global IPO was priced lower. The NGL exporter cited worries about a natural gas glut by 2027. The news deflated stocks in the subsector. But CQP barely moved lower as the income will likely offset earnings setbacks should they occur down the road. The news is still good. The Trump Administration is highly encouraging of natural gas exports and Cheniere is the country’s largest exporter. The longer-term situation was always strong and now the short-term situation is improving. (This security generates a K1 form at tax time.) BUY
Cheniere Energy Partners (CQP)
Next ex-div date: February 4, 2025, est.
Constellation Energy Corporation (CEG)
Yield: 0.5%
This nuclear power company stock was up over 43% this month before pulling back significantly on Monday. The stock soared over 25% in one day after the company announced it will acquire natural gas and geothermal electricity giant Calpine Corp. The acquisition makes Constellation the biggest independent electricity provider in the nation at a time when demand for electricity is skyrocketing because of artificial intelligence. Last week, the Trump Administration announced a $500 billion private sector investment in AI and plans for massive data centers.
But the rocketing stock pulled back Monday as China-based AI company DeepSeek’s recent success raised the threat that advanced AI can be produced without using top-tier AI chips, calling into question the massive AI investments going forward. The industry-wide rout from these fears is likely to be short-lived. But high-flying stocks are very vulnerable to any sort of disturbing news. HOLD
Constellation Energy Corp. (CEG)
Next ex-div date: February 15, 2025, est.
NextEra Energy, Inc. (NEE)
Yield: 3.0%
Earnings
The regulation and clean energy utility stock moved higher last week after it reported earnings. NextEra delivered a strong quarter with earning growth of 8.2% and reiterated its outlook through 2027. But the utility also announced plans to restart its Duane Arnold nuclear plant and a collaboration with GE Vernova to develop natural gas fired projects across the U.S. The utility taking advantage of the soaring electricity demand and the projects are likely to deliver more revenue and stronger growth going forward. BUY
NextEra Energy, Inc. (NEE)
Next ex-div date: February 22, 2025, est.
Qualcomm Corp. (QCOM)
Yield: 2.0%
QCOM isn’t taking a big hit this week because it wasn’t riding high like other AI-related stocks. Although QCOM has been strong this month, it’s still stuck in the mud in the recent range. It’s way below the June high and still the same price it was last spring. But we have sold four calls on the stock and ratcheted up the return despite the recent lack of appreciation. It’s worth being patient because when this stock moves it easily makes up for lost time. And it will take off at some point. The market wants to see strong U.S. smartphone sales from an AI upgrade cycle. Although that hasn’t happened yet it could become a catalyst sometime this year. Qualcomm reports earnings next week and we could get a better idea of the near-term direction of the stock. BUY
Qualcomm Incorporated (QCOM)
Next ex-div date: March 5, 2025, est.
Realty Income Corp. (O)
Yield: 5.8%
The legendary monthly income REIT has been moving higher this month. O rallied along with most interest rate-sensitive stocks and is also getting a boost during this week’s move toward defensive stocks. It had tumbled back to near the yearly lows after riding high for a while in the summer and fall. Although it has a stable and growing business and an unparalleled track record of increasing monthly dividends, O has been at the mercy of the changing interest rate narrative. Lately, that’s been a bad thing, but things are changing for the better. HOLD
Realty Income Corporation (O)
Next ex-div date: February 3, 2025
Toll Brothers, Inc. (TOL)
Yield: 0.6%
The luxury homebuilder company stock is up over 12% since January 10. After a tough couple of months, TOL is moving convincingly off the recent bottom. The recent better news about the likely direction of mortgage rates was the main catalyst. TOL was downgraded to HOLD earlier this month as the recent glum interest rate outlook combined with the inflation report presented a high level of short-term risk. But the outlook has improved, and mortgage rates have been falling. This month is a very welcome change for Tol so far. But the stock will still be rated a HOLD until the recent upside is more established. HOLD
Toll Brothers, Inc. (TOL)
Next ex-div date: January 10, 2025, est.
Existing Call Trades
Sell CEG March 21st $260 call at $20 or better
It’s been a wild ride. CEG soared all the way above $350 per share after these calls were sold (with a $260 strike price). But the stock crashed over 20% on Monday morning because of the DeepSeek AI news. When a stock is flying this high, bad news has a dramatically amplified effect. We’ll see what happens. But we locked in a huge income and likely a high total return regardless.
Sell QCOM March 21st $160 call at $11 or better
The stock moved above the strike price as January has been a good month so far. But the price is still stuck in the same range since the spring though. QCOM has a good chance to take off sometime this year, but we’ll see where the price is on options expiration in March. We secured a great income in addition to the four other calls sold on this stock over the past few years.
Sell CQP March 21st $60 call at $3.00 or better
The stock is pulling back this week. CQP and its parent company stock were riding high on the electricity trade, which hit a snag this week. The partnership is now actually below the strike price. It couldn’t keep moving higher forever and we locked in a great income.
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 February 25, 2025.
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