The Second Half of 2023 Bodes Well for Defense
It has been a fabulous rally that has proven naysayers wrong. The S&P 500 is up about 15% YTD just before the midpoint. Stocks have also rallied more than 20% from the October low into a new bull market.
How much gas is left in the tank?
Inflation is falling and the Fed is almost done hiking rates. It is also looking less likely that there will be a recession this year. Investors are optimistic that we can get to the other side of this hiking cycle without too much pain.
But the rally has been remarkably thin with only a handful of large technology stocks accounting for nearly all the year’s index gains. It’s also true that the economy is likely to slow, even if there isn’t a recession in the quarters ahead. It will be tough for stocks to build significantly onto this rally under such circumstances.
Defensive stocks have been dogs so far this year. But that situation could be reversed. The rally will likely have to either broaden out or peter out. Either situation bodes well for the relative performance of defensive stocks.
A broader rally will likely include defensive sectors in an environment when overall earnings continue to contract. A stumbling rally should also benefit the defensive sectors as they will likely be the best place to be. The first half of the year is nearly over. And defensive stocks look like good positioning ahead of the second half.
Past Month Activity
May 23
Sold BIPC July 21 $45 calls at $3.25
Brookfield Infrastructure Corporation (BIPC) – Rating change “BUY” to “HOLD”
June 2
V June 2 $230 calls at $10.50 - Expired
June 6
Purchased Hess Corporation (HES) - $132.25
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.3%
The infrastructure company stock has pulled back from the recent high, down more than 4% over the last week. But BIPC is still around the higher levels of the recent range. 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. A pullback from the recent spike higher is typical for this stock. But it is getting cheaper ahead of a promising second half of the year. 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 stock is riding a tug-of-war between the negative effects to oil prices of a slowing economy versus 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. But the stock is also uniquely equipped to deal with short-term turbulence in the industry. BUY
Intel Corp, (INTC)
Yield: 1.6%
INTC had initially stumbled after Nvidia (NVDA) rocked the market with blowout earnings. But it has made up for it since. The stock has surged over 30% since the day of the Nvidia report and 16% in just the last week. It’s mostly excitement regarding its expanding chip production capabilities. The Nvidia CEO expressed interest in partnering and the company is continuing to ink new deals around the world. INTC is being increasingly seen as a cheap stock with a bright future. 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 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. NEE has bounced nicely off the low in the last week and hopefully can continue the momentum. BUY
ONEOK, Inc. (OKE)
Yield: 6.3%
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 high and safe dividend and reliable earnings in an environment where overall market earnings are contracting. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield: 20.1%
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: 2.6%
QCOM continues to benefit as AI takes center stage. The stock is up about 20% in less than a month 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 sooner and future prospects are better. HOLD
Visa Inc. (V)
Yield: 0.8%
V has been hanging very tough near the high point of the recent range. The recent calls matured with the stock just shy of the 130 per share strike price. V never really pulled back after the surge. It just kind of leveled off and has shown resilience near this high point of the recent range. The payments processing company once again exceeded expectations on earnings. 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%
This year has not been kind to defensive stocks or energy stocks so far. 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 pulled off its June spike but it is still looking encouraging. BUY
Existing Call Trades
Sell BIPC July 21 $45 calls at $3.25 or better
After a big spike higher, BIPC is indeed pulling back as I suspected it might. The portfolio sold well-in-the-money calls when the stock was riding high. But it has pulled back to within pennies of the strike price. There is still a month to go before 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 | $122.68 | NA | 2.61% | -4.45% |
| Visa Inc. | V | 12/22/21 | $217.96 | $228.91 | NA | 0.79% | 6.25% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $18.88 | NA | 7.94% | -16.49% |
| Star Bulk Carriers Corp. | SBLK | 6/1/22 | $33.30 | $18.41 | NA | 20.65% | -30.87% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $36.37 | NA | 1.37% | -5.82% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $30.53 | $38.00 | 5.86% | -9.25% |
| Brookfield Infrastructure Cp. | BIPC | 11/9/22 | $42.43 | $45.71 | $46.00 | 3.35% | 10.42% |
| ONEOK Inc. | OKE | 3/28/23 | $60.98 | $60.95 | NA | 6.27% | 1.41% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $75.59 | $85.00 | 2.47% | -2.25% |
| Hess Corporation | HES | 6/6/23 | $132.25 | $135.56 | $140.00 | 1.29% | 2.84% |
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 | $2.50 | $3.25 | 7.66% |
| as of close on 6/16/2023 | |||||||
| 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 | 4/14.2022 | $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 | 9/24.2021 | $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% | |