Harvest the Bounty
The market looks strong right now. The S&P 500 just made a new all-time high in a young bull market and the index is up 5.38% in just the first five weeks of this year.
Inflation is way down. The Fed is done hiking rates. The economy is still strong. And earnings are solid. That’s a good macroeconomic background for stocks. But how long will this good news last?
This rally has been mostly confined to just technology stocks, although the healthcare sector is doing pretty good too. The more defensive stocks in REITs and utilities are having a bad year so far while the more cyclical sectors are doing okay. The problem with a still-strong economy is that interest rates are likely to stay high.
The current situation is certainly good for some stocks. Certain portfolio positions have moved up around a 52-week high. The strong momentum produces high call premiums, and the strike price guarantees a solid total return if shares are called. It’s also possible that these good times won’t last, or at least continue over the next few months.
It’s a great time to take advantage of the recent good news and stock market bounty to secure a high income. In this update, I highlight a covered call for portfolio position Marathon Petroleum Corporation (MPC).
We’ll see if the current rally gains steam, if it peters out or if market leadership shifts. There may be stocks added to the portfolio later this week or next. Keep an eye out for “Trade Alerts” in your email.
Past Month Activity
January 19
DLR January 19 $135 calls at $6.00 – Expired
Digital Realty Trust, Inc. (DLR) stock – Called
INTC January 19 $42.50 calls at $3.50 – Expired
Intel Corporation (INTC) stock – Called
January 23
Purchased American Tower Corporation (AMT) - $202.26
February 13
Sell MPC March 28 $165 calls at $10.00 or better
TRADE ALERT: Sell MPC March 28 $165 calls at $10.00 or better
Expiration date: March 28
Strike price: $165
Call price: $10.00
Marathon Petroleum Corporation (MPC)
The is a great refiner stock with a spectacular track record of continually outperforming the energy sector and its refining peers. Profitability is still strong, and the company is flush with cash after several good years. But refiner fortunes vary from quarter to quarter and month to month. Pullbacks are quite common even if MPC ends up having a very good year. Let’s lock in a high income while the market and the stock are riding high.
Here are the three scenarios.
1. The stock closes above the $165 strike price at expiration.
Call premium: $10.00
Dividends: $1.65
Appreciation: $15.55 ($165 strike price minus $149.45 purchase price)
Total: $27.20 (total return will be 18.2% in 5 months)
2. The stock price closes below but near our $165 strike price.
Call premium: $10.00
Dividends: $1.65
Total: $11.65 (total income of 7.8% in 5 months)
3. The stock price declines.
There will be $11.65 in income to offset the decline. Plus, the original purchase price was more than $15 per share below the strike price.
Portfolio Recap
AbbVie Inc. (ABBV)
Yield: 3.6%
ABBV hit another brand-new all-time high last week. The stock had bounced around in a range since the beginning of 2022, but it has finally broken out to a new level. The company beat earnings expectations and raised guidance and indicated that moderate revenue growth would return this year and robust growth next year.
Management expects combined sales of immunology replacement drugs Skyrizi and Rinvoq will be $16 billion this year (Humira peak sales were $21 billion) and $27 billion in 2027. AbbVie appears closer to turning the corner than analysts expected. The market tends to anticipate six to nine months into the future and may start pricing in the robust growth expected next year before long. HOLD
Alexandria Real Estate Equities, Inc. (ARE)
Yield: 4.4%
The life science property REIT has a unique and growing property portfolio. But it has been trading like a volatile REIT. It was down more than its peers the last two years. It rallied much more than the sector the last two months of last year. And ARE is down more in the rough start for REITs this year as interest rates have spiked higher in the better-than-expected economy. But the company is strong operationally and the stock sells at a compelling valuation with reliable earnings and should have a solid year as interest rates peak and perhaps trend lower. BUY
American Tower Corporation (AMT)
Yield: 3.5%
This newly added cell tower property REIT had a very big move at the end of last year. Rising interest rates had been holding it back, along with the rest of the REIT sector, but the peaking and falling of interest rates reignited AMT more than its peers. That’s because it was dirt cheap with growing earnings and a lot of upside. The company also recently sold its India properties to Brookfield Infrastructure Partners (BIP) which eliminates some problems and provides $2 billion to firm up the balance sheet. Interest rate volatility has been pressuring the stock lower so far this year. Recent weakness provides a good entry point to buy the stock. BUY
Marathon Petroleum Corp, (MPC)
Yield: 1.9%
This oil refiner stock reported earnings that beat expectations last month and the stock has since made a new all-time high. Despite the beat, earnings and revenues were significantly lower than last year’s quarter, which was expected as historically high margins from a year ago were never going to last. Yet, earnings and revenues remain very solid by historical standards. The company is flush with cash from the boom times and still making a strong profit. MPC is still up over 12% YTD, despite the fact that the energy sector is negative for the year so far. It is also poised to rise on continuing tension in the Middle East, which tends to lift all energy stocks. BUY
NextEra Energy, Inc. (NEE)
Yield: 3.3%
This beleaguered stock had been a superstar performer before inflation and rising interest rates. It provides both safety from its best-in-class regulated utility business and growth from its considerable clean energy business. The utility reported strong earnings that exceeded expectations again last month and reiterated its growth projections for this year, near the top of the estimated range. The interest rate-related weakness should at least diminish going forward as rates have likely peaked. This stock is still oversold. It should have its day in the sun again, and probably before long. BUY
Qualcomm Corp. (QCOM)
Yield: 2.1%
After a strong start to this year, QCOM pulled back after a solid earnings report. The pullback was more about the absence of exciting news rather than bad news. But the stock has since come back and is again near the 52-week high. It should be a good year. The Semiconductor Industry Association is forecasting 13% growth in worldwide chip sales this year. Leaders like Qualcomm should experience a much higher level of growth than the overall industry. Qualcomm is introducing new AI chips for PCs and smartphones that could be big sellers this year. BUY
Realty Income Corp. (O)
Yield: 5.8%
This legendary monthly income stock is another one that has had rare poor performance these past two unusual years. Rising interest rates certainly appear to be what is holding O back as it soared at the end of last year after interest rates peaked. O has had a crummy start to this year as the interest rate trade has reversed for the time being. It must be at least the very late innings for rising and high interest rates and O is well positioned ahead of a likely shift in the future. It is still a great stock at a cheap price with retail staple properties and solid growth likely ahead. BUY
The Williams Companies, Inc. (WMB)
Yield: 5.6%
It hasn’t been a great start to this year for midstream energy stocks. Many other income stocks are taking it on the chin in the early going, and the energy sector is in slightly negative territory for the year. But it hasn’t been that bad either. WMB is down 4% YTD. That loss should be recouped easily when it rallies again, and WMB is coming off two solid years of performance while most other stocks struggled.
It’s a stable high-yield stock and the company should deliver solid and dependable earnings in just about any economy. Business remains solid and not dependent on commodity prices. It pays a well-supported dividend (with 2.38 times cash flow coverage). Recent acquisitions and expansions ensure more solid growth going forward all the way out to 2028. BUY
Xcel Energy Inc. (XEL)
Yield: 3.5%
Utilities are still remarkably reliable revenue generators in any economy. Alternative energy is still the wave of the future. A combination of safety and growth is still highly desirable. But XEL has been a dog. It had a rotten two years until November and December when it turned sharply higher. But January has seen a return of ugliness as investors walked away from interest rate-sensitive stocks. But Xcel reported solid earnings on lower operating expenses. This is one of the best utility stocks to own and the recent debauchery may prove to be very temporary. XEL still sells near the lowest valuations of the past several years. BUY
Existing Call Trades
Sell ABBV March 15 $160 calls at $7.00 or better
The rally in ABBV has continued. The stock has broken out of the range in which it has traded for the last two years. It could be that investors are looking ahead to when earnings truly turn the corner next year and will continue to run higher. But it could also pull back and consolidate if investors sense they might be a little early to the party.
Current Recommendations
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| AbbVie Inc. | ABBV | 7/25/23 | $141.63 | $174.08 | $150.00 | 3.56% | 25.32% |
| Alexandria Real Estate Eq. | ARE | 12/19/23 | $129.54 | $116.20 | $140.00 | 4.37% | -9.41% |
| American Tower Corp. | AMT | 1/23/24 | $202.26 | $194.44 | $220.00 | 3.50% | -3.87% |
| Marathon Petroleum Corp. | MPC | 10/24/23 | $149.45 | $169.97 | $155.00 | 1.94% | 14.99% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $56.58 | $65.00 | 3.31% | -25.73% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $52.76 | $62.00 | 5.83% | -9.00% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $151.00 | $165.00 | 2.12% | 19.18% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $34.03 | $38.00 | 5.58% | 3.81% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $58.17 | $65.00 | 3.58% | 2.12% |
| Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| ABBV Mar 15th $160 call | ABBV240315C00165000 | Sell | 1/10/24 | $7.00 | $14.47 | $7.00 | 4.94% |
| MPC Mar 28th $165 call | MPC240328C00165000 | Sell Pending | $9.87 | $10.00 | 6.69% | ||
| as of close on 02/09/2024 | |||||||
| SOLD STOCKS | |||||||
| Stock | 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% |
| 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 | 11/22/24 | $6.00 | 1/19/24 | $6.00 | 5.11% | |
| INTC $42.50 Jan 19th call | in-the-money | 11/29/24 | $3.50 | 1/19/24 | $3.50 | 8.71% | |
Copyright © 2024. All rights reserved. Copying or electronic transmission of this information without permission is a violation of copyright law. For the protection of our subscribers, copyright violations will result in immediate termination of all subscriptions without refund. Disclosures: Cabot Wealth Network exists to serve you, our readers. We derive 100% of our revenue, or close to it, from selling subscriptions to our publications. Neither Cabot Wealth Network nor our employees are compensated in any way by the companies whose stocks we recommend or providers of associated financial services. Employees of Cabot Wealth Network may own some of the stocks recommended by our advisory services. Disclaimer: Sources of information are believed to be reliable but they are not guaranteed to be complete or error-free. Recommendations, opinions or suggestions are given with the understanding that subscribers acting on information assume all risks involved. Buy/Sell Recommendations: are made in regular issues, updates, or alerts by email and on the private subscriber website. Subscribers agree to adhere to all terms and conditions which can be found on CabotWealth.com and are subject to change. Violations will result in termination of all subscriptions without refund in addition to any civil and criminal penalties available under the law.