Defense Is Cheap in a High Market
It’s a new bull market!
The S&P 500 has rallied over 20% from the low, the technical definition of a bull market. The index is also up about 12% YTD. Are stocks topping out or are we off to the races?
Despite inflation, the Fed, and increasing forecasts of recession, stocks have defied conventional wisdom and rallied strongly. That’s impressive. But this rally is incredibly thin. Ten primarily large technology company stocks are responsible for all of the index gains YTD. The other 490 stocks have collectively gone nowhere.
Sure, these tech stocks can continue to pull the market higher for a while. Portfolio stocks Intel (INTC) and Qualcomm (QCOM) are benefiting. But the rally will have to eventually either broaden out or peter out.
The market is seeing falling inflation, a Fed nearly done hiking rates, and no recession. Perhaps the market has it right. But there are still risks to that scenario. A bad headline could sour that view in a day.
If this rally has staying power, it will have to include some of the eight poorly performing sectors YTD. That will likely include some of the defensive sector laggards in utilities and healthcare, especially considering that the economy is likely to slow even if there isn’t a recession. If the rally peters out, defensive stocks will likely be the best place to be.
It’s not time to give up on the buy-rated defensive stocks in the portfolio. Sure, technology is having all the fun, and defensive stocks have been dogs. But this is just a snapshot in time. Things might look a whole lot different in a couple of months.
Past Month Activity
May 16th
ONEOK Inc. (OKE) – Rating change “BUY” to “HOLD”
May 19th
OKE May 19th $65 calls at $2.70 – Expired
May 23rd
Sold BIPC July 21st $45 calls at $3.25
Brookfield Infrastructure Corporation (BIPC) – Rating change “BUY” to “HOLD”
June 2nd
V June 2nd $230 calls at $10.50 - Expired
June 6th
Purchased Hess Corporation (HES) - $132.25
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.2%
The infrastructure company is up over 12.5% since the beginning of May while the market is only up 3.15% over the same period. The stock got new life after a sluggish period because Brookfield reported a solid earnings quarter with funds from operations (FFOs) per share growth of 12.5% over last year’s quarter. The stock had been suffering from the lull in defensive stocks, but it won’t stay down for long. It is around the top of the recent range. It could break out from here or level off. HOLD
Global Ship Lease, Inc. (GSL)
Yield: 7.9%
It’s been a tough market for this container shipping company stock since the top early last year. But it has bounced off the bottom, and operational performance is still solid. Last quarter Global grew net revenue 3.7% and 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 was interrupted because the Chinese recovery hasn’t materialized. But it’s off the low and up sharply so far this month. HOLD
Hess Corporation (HES)
Yield: 1.3%
This energy exploration and production company got a bit of a boost after Saudi Arabia announced another million barrels per day in production cuts, adding to a plethora of factors that will pressure oil prices higher 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%
After Nvidia (NVDA) rocked the market with blowout earnings, Intel appeared to get yet another black eye. INTC fell 7% on the day of the announcement because it doesn’t really have a competitive AI chip. There’s one in the works. But it isn’t expected to launch until 2025. But INTC got a new life. The stock has soared over 20% from the low after the Nvidia report less than three weeks ago.
The Nvidia CEO expressed interest in using Intel’s production facilities for its chips. Intel has greatly expanded its foundry business and can benefit from the AI frenzy in another way. Institutional ownership in the stock is high as there is a growing sense that INTC will benefit from AI and the stock is still cheap ahead of a bright future. We’ll see if the momentum lasts or if the company finds a way to screw it up. HOLD
NextEra Energy, Inc. (NEE)
Yield: 2.5%
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 lower end of that range. NEE is still more than 15% 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. NEE is also well positioned as a defensive stock with growth in a highly uncertain market. BUY
ONEOK, Inc. (OKE)
Yield: 6.4%
OKE is continuing to bounce back admirably from the selloff of a couple of weeks ago when the market hated its purchase of Magellan Midstream Partners (MMP). 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 a high and safe dividend and reliable earnings in an environment where overall market earnings are contracting. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield: 21.0%
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 GSL, Star Bulk hasn’t massively increased its 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. It has rallied in the past week as economic news has improved. Hopefully, the momentum will last. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.7%
QCOM continues to benefit as AI takes center stage. The stock is up over 18% in the last three weeks, and the momentum may continue. 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. The company had been reeling from falling smartphone demand. But recent developments indicate that profits are likely to rise in the quarters ahead. HOLD
Visa Inc. (V)
Yield: 0.8%
V has been hanging very tough near the high point of the recent range. The payments processing company once again exceeded expectations on earnings. Visa grew earnings per share by 17% and revenues grew double digits versus last year’s quarter. The stock should benefit from the decreasing likelihood of a near-term recession and can really take off as the market recovers. HOLD
The Williams Companies, Inc. (WMB)
Yield 5.9%
WMB is down over 4% YTD. This year has not been kind to defensive stocks or energy stocks so far. But there’s also natural gas. Prices have fallen largely because of the unusually warm winter temperatures throughout the country and the world. But it isn’t affecting the bottom line. Williams once again delivered on earnings and beat expectations for the fourth straight quarter. Earnings per share grew a whopping 36% over last year’s quarter as natural gas volumes remained strong and growing. WMB has also had a sharp spike over the past couple of weeks. BUY
Existing Call Trades
Sell BIPC July 21st $45 calls at $3.25 or better
Shares are hanging tough at the high end of the recent range after a surge in May. We’ll see if the stock tops out or continues to rally from here. Either way, we locked in a high income.
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 | $119.11 | NA | 2.69% | -7.23% |
| Visa Inc. | V | 12/22/21 | $217.96 | $223.56 | NA | 0.80% | 3.77% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $18.92 | NA | 7.91% | -16.31% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $18.12 | NA | 20.97% | -31.96% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $31.34 | NA | 1.60% | -18.84% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $30.39 | $38.00 | 6.15% | -9.56% |
| Brookfield Infrastructure Cp. | BIPC | 11/9/22 | $42.43 | $47.92 | $46.00 | 3.19% | 15.76% |
| ONEOK Inc. | OKE | 3/28/23 | $60.98 | $59.84 | NA | 6.34% | -0.44% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $74.07 | $85.00 | 2.52% | -4.22% |
| Hess Corporation | HES | 6/6/23 | $132.25 | $136.39 | $140.00 | 1.28% | 3.13% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial 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 | $3.60 | $3.25 | 7.66% |
| as of close on 6/09/2023 | |||||||
| 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 | 11/19/21 | $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 | 3/17/203 | $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% | |