The Market Dynamic Is Changing
In what has been a basically good market this year, investors just got a dose of bad news. Inflation isn’t going down enough, even with the current high rates. That makes the rate cut “Holy Grail” far less likely anytime soon.
The Fed will have to at least keep interest rates at a very high level to prevent inflation from reigniting. But at some point, the Fed will need to lower interest rates in order to keep the recovery alive. But they can’t, at least to an impactful degree. Historically, inflation tends to come right back when the Fed takes its foot off the gas.
The Goldilocks situation where inflation falls while the economy thrives won’t last. The high rates will bring down the economy eventually. But the way to prevent that is inflationary. Sure, the economy may stay solid for a while longer. It’s an election year. Plus, the market still has the huge artificial intelligence catalyst. And defensive stocks are cheap. But the inflation/recession quandary isn’t going away. It will likely be the next big thing the market contends with.
That’s why this portfolio has elected not to chase stocks that benefit in the current dynamic. It makes more sense to stay diversified ahead of the changes coming. It’s also prudent to sell covered calls on positions that have moved up around the 52-week high. That way they generate high call premiums, and we can lock in a high income and guarantee a solid total return if the stocks get called.
Be on the lookout for the monthly issue next week as well as the Cabot Retirement Club monthly video.
Past Month Activity
January 19th
DLR January 19th $135 calls at $6.00 – Expired
Digital Realty Trust, Inc. (DLR) stock – Called
INTC January 19th $42.50 calls at $3.50 – Expired
Intel Corporation (INTC) stock – Called
January 23rd
Purchased American Tower Corporation (AMT) - $202.26
February 14th
Sold MPC March 28th $165 calls at $10.00
Portfolio Recap
AbbVie Inc. (ABBV)
Yield: 3.5%
ABBV is coming off a very crummy year in 2023. It returned just -0.70% for the year while the overall market had a good year. The company had to deal with shrinking revenues and earnings as its mega-blockbuster drug Humira lost patent exclusivity in the U.S. But that has been long expected and well planned for. Investors are now looking toward the promising future beyond as management expects moderate earnings growth 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 is starting to price in the bright future. HOLD
Alexandria Real Estate Equities, Inc. (ARE)
Yield: 4.3%
Ouch. The short-term timing of this stock purchase is looking bad so far. This is a phenomenal life science property REIT. It was a superstar as REITs rallied in the last two months of last year but has been a dog so far in 2024 as the interest rate trade reversed amid the better-than-expected economy. But things change.
Alexandria has a unique and growing property portfolio but it trades like a volatile REIT, which has been a bad thing lately. The current situation in the market could completely reverse in a matter of months or even less. Meanwhile, this is one of the very best REITs on the market still selling at an absurdly cheap valuation. Anomalies never last that long in the market. Holding ARE will prove to be very worthwhile before long. BUY
American Tower Corporation (AMT)
Yield: 3.5%
Ditto what I just said about ARE. This is one of the best REITs on the market that deals in very high-quality properties. The cell tower properties will only grow in demand in the years ahead and in any other interest rate environment AMT will sell at a much higher price. The current dynamic could last a while though. After all, it’s a big election year. But ARE will most certainly shine again. In the meantime, it pays you to wait. BUY
Marathon Petroleum Corp. (MPC)
Yield: 1.9%
You never know. When MPC was purchased in the portfolio, I believed the economy would turn south in the months ahead. But I wanted a hedge in case I was wrong. That’s turning out very well so far. The economy is stronger than expected and this refiner stock is shining near all-time highs. Earnings and revenues remain very strong by historical standards. The company is flush with cash from the boom times while robust profits continue to roll in. MPC 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: 3.6%
NEE 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%
Qualcomm is secretly one of the best semiconductor and AI stocks to own. But it has been held back by cyclicality, both in semiconductors and smartphones. But the negative cycle is coming to an end and QCOM is aching to surge higher. 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. It’s an AI beneficiary that just hasn’t really had its day yet. BUY
Realty Income Corp. (O)
Yield: 5.9%
This beleaguered stock has consistently and historically been one of the very best income stocks to own of all time. The monthly dividend has been raised every year since the Nixon administration. But the last two years of inflation and rising interest rates have been among the worst two years in this stock’s history. That makes it dirt cheap ahead of an environment that will almost surely get much better. It’s probably 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%
The year started awfully for dividend stocks and the energy sector is barely positive YTD. That’s an ugly backdrop for WMB. It fell near the lowest level since last fall. But the defensive and high-end midstream energy stock has been moving higher again of late as earnings beat expectations and the company raised guidance for 2024. While the market environment temporarily turned against WMB, it is still kicking butt and taking names operationally. 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 this year 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 15th $160 calls at $7.00 or better
The rally in ABBV has continued. The previous two times it had hit the yearly high, it pulled back in the following months. But not this time so far. 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.
Sell MPC March 28th $165 calls at $10.00 or better
The good times are rolling, MPC has a history of strong performance even when the energy sector is weak. The recent strong economy is providing solid profits. MPC is rocking new all-time highs. But the refining business can turn on a dime. It could be a completely different story by option expiration, or even next week for that matter. Meanwhile, we secured a high income and possible strong total return.
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 | $177.49 | $150.00 | 3.49% | 27.78% |
| Alexandria Real Estate Eq. | ARE | 12/19/23 | $129.54 | $119.28 | $140.00 | 4.26% | -7.01% |
| American Tower Corp. | AMT | 1/23/24 | $202.26 | $187.13 | $220.00 | 3.63% | -7.48% |
| Marathon Petroleum Corp. | MPC | 10/24/23 | $149.45 | $170.01 | $155.00 | 1.94% | 15.01% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $57.03 | $65.00 | 3.61% | -25.14% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $152.69 | $165.00 | 2.10% | 20.51% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $52.33 | $62.00 | 5.88% | -9.74% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $34.31 | $38.00 | 5.54% | 4.67% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $59.07 | $65.00 | 3.52% | 3.70% |
| Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Initial 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 | 2/14/24 | $10.00 | $10.41 | $10.00 | 6.69% |
| as of close on 02/16/2024 | |||||||
| 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% | |
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