An Unpredictable Second Half
It’s anybody’s guess what the second half will have in store for the market. The first half surprised almost everyone with a stellar 16% gain in the S&P.
Investors are sensing a soft-landing, whereby we get past this Fed rate hiking cycle without a recession and minimal economic pain. Recent economic numbers reflect a greater likelihood of that scenario.
Anything is possible. The market could be off to the races, or it could sober up and pull back. Inflation is falling while the Fed is still making hawkish noises. It’s reasonable to assume that even if the economy isn’t slowing down yet, the Fed will continue to raise rates until it does.
It will be difficult for stocks to add much to the near 24% rally since the October low ahead of a slowing economy and still contracting corporate earnings. But the artificial intelligence mania could drive technology stock prices higher despite the economic cycle and buoy the market.
The portfolio has several cyclical stocks that will benefit in good second half for the market as well as defensive positions that will benefit if the rally broadens or the market goes sideways in a slowing economy.
In this update, I highlight new covered calls on stocks that have run up near the recent high in the latest rally. It presents an opportunity to derive a high income from the market’s good fortune.
Past Month Activity
June 27th
Purchased Realty Income Corporation (O) - $60.19
July 11th
Sell V August 18th $235 calls at $9.00 or better
Sell GSL August 18th $20 calls at $1.25 or better
TRADE ALERT: Sell V August 18th $235 calls at $9.00 or better
Expiration date: August 18th
Strike price: $235
Call price: $9.00
Visa Inc. (V)
V has returned a solid 14.24% YTD after a very respectable -3.39% return in last year’s bull market. It’s also a great stock to own for the long term, as the trend toward cashless transactions continues to grow. V hit a new recent high in the strong market. It’s a stock that tends to level off after hitting a new high and the market rally looks a little shaky here.
Here are the three scenarios.
1. The stock closes above the $235 strike price at expiration.
Call premium: $9.00
Dividends: $2.48
Appreciation: $17.04 ($235 strike price minus $217.96 purchase price)
Total: $28.52 (total return will be 13% 20 months, but 23.4% counting the previous calls sold for $12.00 and $10.50)
2. The stock price closes below but near our $45 strike price.
Call premium: $9.00
Dividend: $2.48
Total: $11.48 (total income of 5.3% and 15.6% with the previous calls)
3. The stock price declines.
There will be $11.48 in income to offset the decline. Plus, the original purchase price was $17 below the strike price.
TRADE ALERT: Sell GSL August 18th $20 calls at $1.25 or better
Expiration date: August 18th
Strike price: $20
Call price: $1.25
Global Ship Lease, Inc. (GSL)
GSL should be a strong stock longer term as the supply/demand dynamic for containerships is quite favorable. The stock has been battered in the tough market of the last year and a half. The last two times SLF moved above the 20 per share level it pulled back over the next month. We can get the stock to pay us more while waiting for better days.
Here are the three scenarios.
1. The stock closes above the $20 strike price at expiration.
Call premium: $1.25
Dividends: $1.88
Appreciation: -$4.96 ($20 strike price minus $24.96 purchase price)
Total: -$1.83 (total return will be -7.3% in 17 months)
2. The stock price closes below but near our $20 strike price.
Call premium: $1.25
Dividend: $1.88
Total: $3.13 (total income of 12.5% in 17 months)
3. The stock price declines.
There will be $3.13 in income to offset the decline.
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield 3.4%
The infrastructure company stock looks rock solid going forward. The company estimates earnings (as measured by funds from operations) will grow over 10% for 2023. Despite the market’s rise this year, BIPC still sells about 9% below the 52-week high, largely due to the lull in defensive stocks in the first half of the year. The market rally is broadening out the economy is likely to slow in the second half, two things that should bode well for the relative performance of BIPC. HOLD
Global Ship Lease, Inc. (GSL)
Yield: 7.4%
It’s been a tough market for this container shipping company stock since last year. But it has bounced off the bottom and operational performance is still solid. Last quarter Global grew normalized earnings per share by 14.6% while continuing to expand its fleet of ships. The longer-term supply/demand dynamic is excellent and bodes well for the future. The near-term recovery in the stock depends on the state of the global economy. It’s benefitting from the reopening of China and the stock should take off eventually. HOLD
Hess Corporation (HES)
Yield: 1.3%
It’s hard to say where this stock will be in a month or two. It largely depends on energy prices which depend on economic activity and demand. There are a plethora of factors putting upward pressure on oil prices in the months ahead. The longer-term supply/demand dynamic favors energy very much and Hess is a special case. It can increase production almost at will with very low-cost production. It should be stellar if energy stocks move higher again. BUY
Intel Corp, (INTC)
Yield: 1.6%
INTC got a huge 30% bump with confidence in its chip production ability and the indirect benefits from the soaring demand for AI related products and services. We’ll see if Intel can slay the competition with its new plan and its new chips. But a surge in technology demand across the board provided by the magnitude of the AI frenzy will lift all boats. Intel’s future got a lot better with the recent AI bump. It might increasingly be seen as a cheap stock with a bright future. HOLD
NextEra Energy, Inc. (NEE)
Yield: 2.6%
This combination regulated, and clean energy utility stock has bounced around all over the place for the past two years and is currently at the low end of that range. NEE is still well below the recent high. Defensive stocks have floundered. But that might not last. This company is targeting earnings per share growth of 6% to 8% annually through 2026 and 10% per year dividend growth through at least 2024. BUY
ONEOK, Inc. (OKE)
Yield: 6.1%
After getting clobbered last month when the market hated its purchase of Magellan Midstream Partners (MMP), OKE has been soaring right back and has regained nearly all of those loses. The deal will turn ONEOK from a natural gas operator to a diversified midstream company that services oil and refined products as well. The deal is a longer-term positive that could hurt performance in the near term. But this will remain a solid performer with high and safe dividend and reliable earnings in an environment where overall market earnings are contracting. HOLD
Realty Income Corp. (O)
Yield: 5.1%
This legendary monthly income stock is part of two underperforming sectors in the first half, Real Estate and consumer staples. It currently sells well below the pre pandemic high, despite having higher earnings, and the stock is now near the lowest point since last summer. But income and safety may be at a premium in the second half of the year. Either investors will crave defense again or the rally will broaden out to include this year’s lagging sectors. BUY
Star Blk Carriers Corp. (SBLK)
Yield 8.1%
The dry bulk shipping company had rallied earlier this year as shipping rates recovered somewhat. But the stock has pulled back to about even YTD as the Chinese recovery hasn’t delivered the desired effect on shipping rates. Unlike GLS, Star Bulk hasn’t massively increased their fleet size and year over year comparisons are tough as shipping rates have fallen. Although it is likely still the early innings of a multiyear positive cycle for shipping, the stock recently moved near the low. HOLD
Qualcomm Corp. (QCOM)
Yield 2.7%
Like INTC, QCOM has pulled back in the last couple of weeks after its initial AI surge. It’s bouncing around as investors fluctuate between confidence in the company’s future and waning AI excitement. Qualcomm describes itself as the “on device AI leader”, and the company should benefit mightily from the increasing shift towards AI and profits are now likely to soar sooner than previously expected. Although Qualcomm doesn’t benefit as directly and immediately from AI as some other companies, eventually the AI boost will find its way to mobile devices and QCOM will be in a great position. HOLD
Visa Inc. (V)
Yield 0.8%
V loves the surprisingly strong economy and increasing soft-landing talk. Inflation is down, GDP was revised higher, and the consumer is still strong. In addition, Visa just purchased a Brazilian fintech company that rival MasterCard (MA) also wanted and beat them out. As a result, V soared to a new 52-week high and the highest price in about a year. The stock tends to level off after surges higher and the rally may have run out of gas. Therefore, the portfolio is looking to sell a call while the stock still has some momentum. HOLD
The Williams Companies, Inc.
Yield 5.5%
This midstream energy company has reliable earnings that should even remain solid in a slowing economy. Earnings per share grew a whopping 36% over last year’s quarter as natural gas volumes remained strong and growth. But growth is expected to slow as year-over-year comparisons include recent acquisitions. But the company is also investing heavily for future growth. Selling at just 8 times earnings, it is a cheap and defensive stock with a high and reliable dividend ahead of an uncertain second half of the year. BUY
Existing Call Trades
SOLD BIPC July 21st $45 calls at $3.25
This is shaping up to be a close one. In-the-money calls were sold when the stock was riding high. But BIPC has been trending lower and is now just pennies above the strike price with only 10 days to go before options expiration. We’ll see what happens. But we will secure a great income no matter what.
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 | $115.94 | NA | 2.71% | -9.70% |
| Visa Inc. | V | 12/22/21 | $217.96 | $236.45 | NA | 0.76% | 9.75% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $20.15 | NA | 7.44% | -10.87% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $17.21 | NA | 8.13% | -35.38% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $31.85 | NA | 1.57% | -17.52% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $32.73 | $38.00 | 5.50% | -2.71% |
| Brookfield Infr.Cp. | BIPC | 11/9/22 | $42.43 | $45.56 | $46.00 | 3.36% | 10.06% |
| ONEOK Inc. | OKE | 3/28/23 | $60.98 | $62.17 | NA | 6.14% | 3.44% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $72.05 | $85.00 | 2.60% | -6.83% |
| Hess Corporation | HES | 6/6/23 | $132.25 | $134.41 | $140.00 | 1.30% | 1.97% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $59.57 | $62.00 | 5.15% | -0.61% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Initial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| BIPC $45 July 21st call | BIPC230721C00045000 | Sell | 5/23/23 | $3.25 | $1.25 | $3.25 | 7.66% |
| V $235 Aug 18th call | V230818C00235000 | Sell Pending | $8.45 | $9.00 | |||
| GSL $20 Aug 18th call | GSL230818C00020000 | Sell Pending | $1.00 | $1.25 | |||
| as of close on 7/07/2023 | |||||||
| SOLD STOCKS | |||||||
| Security | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | $87.82 | 9/18/20 | $100.00 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95.00 | 7.30% |
| U.S. Bancorp | USB | Called | 7/22/20 | $36.26 | 9/18/20 | $38 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
| AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
| ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
| KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
| Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
| U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
| Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14/22 | $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% |
| EXPIRED OPTIONS | |||||||
| Security | In/out money | Sell Date | Sell Price | Exp. Date | $ Return | Total % Return | |
| IIPR Jul 17 $95 call | out-of money | 6/3/20 | $3.00 | 7/17/20 | $3.00 | 3.40% | |
| MO Jul 31 $42 call | out-of-money | 6/17/20 | $1.60 | 7/31/20 | $1.60 | 4.03% | |
| ABBV Sep 18 $100 call | out-of-money | 7/15/20 | $4.60 | 9/18/20 | $4.60 | 5.05% | |
| IIPR Sep 18 $100 call | in-the-money | 7/22/20 | $5.00 | 9/18/20 | $5.00 | 5.69% | |
| QCOM Sep 18 $95 call | in-the-money | 6/24/20 | $4.30 | 9/18/20 | $4.30 | 4.82% | |
| USB Sep 18 $37.50 call | in-the-money | 7/22/20 | $2.00 | 9/18/20 | $2.00 | 5.52% | |
| BIP Oct 16 $45 call | in-the-money | 9/2/20 | $1.95 | 10/16/20 | $1.95 | 4.65% | |
| SBUX Oct 16 $87.50 call | in-the-money | 10/16/20 | $3.30 | 10/16/20 | $3.30 | 4.00% | |
| V Nov 20 $200 call | in-the-money | 9/22/20 | $10.00 | 11/20/20 | $10.00 | 4.99% | |
| ABBV Dec 31 $100 call | in-the-money | 11/18/20 | $3.30 | 12/31/20 | $3.30 | 3.62% | |
| EPD Jan 15 $20 call | in-the-money | 11/23/20 | $0.80 | 1/15/21 | $0.80 | 4.41% | |
| MO Jan 15 $40 call | in-the-money | 11/25/20 | $1.90 | 1/15/21 | $1.90 | 4.79% | |
| USB Jan 15 $45 call | in-the-money | 11/25/20 | $2.00 | 1/15/21 | $2.00 | 4.48% | |
| BGS Feb 19 $27.50 call | in-the-money | 12/11/20 | $2.40 | 2/19/21 | $2.40 | 8.96% | |
| VLO Mar 26 $60 call | in-the-money | 2/10/21 | $6.50 | 3/26/21 | $6.50 | 12.10% | |
| CVX Apr 1 $95.50 call | in-the-money | 2/19/21 | $4.30 | 4/1/21 | $4.30 | 5.02% | |
| AGNC Jun 18 $17 call | out-of-money | 4/13/21 | $0.50 | 6/18/21 | $0.50 | 3.21% | |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | $3.00 | 6/18/21 | $3.00 | 6.25% | |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | $2.80 | 6/18/21 | $2.80 | 5.24% | |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | $8.00 | 7/16/21 | $8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |
| BIP Oct 15 $55 call | in-the-money | 9/01/21 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24/21 | $2.30 | 11/19.2021 | $2.30 | 4.30% | |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |
| QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% | |
| OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% | |
| OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% | |
| USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% | |
| VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% | |
| EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% | |
| FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% | |
| XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% | |
| SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% | |
| OKE Oct 21st $65 call | out-of-money | 8/24/22 | $3.40 | 10/21/22 | $3.40 | 5.22% | |
| OKE Jan 20th $65 call | In-the-money | 11/25/22 | $3.70 | 1/20/23 | $3.70 | 5.68% | |
| XEL Jan 20th $65 call | in-the-money | 11/25/22 | $5.00 | 1/20/23 | $5.00 | 7.99% | |
| O Feb 17th $62.50 call | in-the-money | 12/28/22 | $3.00 | 2/17/23 | $3.00 | 4.97% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20/22 | $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% | |