The Market Rallies, but Here Comes the Inflation Report
The market has regained its footing. After a 5% pullback in the earlier part of April, the S&P 500 has since regained nearly all that was lost, and the index is within bad breath distance of the high.
Earnings have been good. With 92% of S&P 500 companies having reported, earnings increased an average of 5.4% over last year’s quarter. But it’s better than that. If you take out the report of Bristol-Myers Squibb (BMY), average earnings growth would be 8.3% for all the other stocks on the index. That’s a healthy gain.
There has also been good interest rate news. The Fed indicated that the next rate move would likely be a cut rather than a hike. That assuaged the fears of investors. Also, slower GDP and jobs growth combined with the Fed speak led investors to expect the first Fed rate cut in September with another one likely before the end of the year.
But the better interest rate prognosis is just the latest twist in this unfolding saga. April CPI will come out this week. A bad number could turn the latest interest rate optimism upside down. Inflation has been sticky and slightly rising all year. If the inflation number for April is higher than expected, the market won’t like it. Of course, if the number is as expected or better, stocks will likely rally. We’ll see.
Several portfolio stocks have been moving higher. Qualcomm (QCOM) has rallied 17% since it reported earnings in the middle of April. I’m holding off for now on selling another covered call because the current rally in the stock may have further to go. It is also likely that The Williams Companies (WMB) will be called on the Friday options expiration date. But we secured a high income and still have Enterprise Product Partners (EPD) in the midstream energy space.
Past Month Activity
April 23
Purchased FS KKR Capital Corp (FSK) – $19.42
April 26
QCOM April 26 $170 calls at $10.00 – Expired
May 14
Sell Xcel Energy (XEL)
Portfolio Recap
Alexandria Real Estate Equities, Inc. (ARE)
Yield: 4.2%
This one-of-a-kind life science property REIT tends to bounce around with the current interest rate narrative in the near term. That’s been a good thing this month. The REIT also reported strong earnings earlier this month that beat expectations. Adjusted funds from operation grew at 7.3% over last year’s quarter and raised the quarterly dividend by 5%. Occupancy and the rate of acquisitions reflected a solid business, and the dividend hike showed confidence. ARE is a great income stock selling at the low end of historical valuations while the company is consistently growing revenues and profits from its niche properties. BUY
American Tower Corporation (AMT)
Yield: 3.5%
This cell tower REIT is also having a good month of May amid the improved interest rate narrative and strong earnings. American Tower rallied strongly after the REIT beat estimates on both revenue and earnings with 9.8% adjusted funds from operations per share growth over last year’s quarter. The REIT also raised guidance for 2024. Hopefully, the strong operational performance along with the better interest rate news will last and AMT can muster a sustained rally in the weeks and months ahead. BUY
Brookfield Infrastructure Corp. (BIPC)
Yield: 4.7%
It’s been a wild ride on the current interest rate narrative for this infrastructure company. It was an awful first half of April as the stock fell about 20% in the first two weeks. But Brookfield reported strong earnings and the company has rallied to make up just about all of that dip since. It’s also up 20% since April 16th. Funds from operations grew 11% over last year’s quarter as new assets came online, the transportation segment was strong, and inflation indexation kicked in for a lot of its contracts. The company also raised the next quarterly dividend by 6%. Solid earnings and a dividend raise are indicative of a company that is operationally strong. BUY
Enterprise Product Partners L.P. (EPD)
Yield: 7.2%
This midstream energy partnership has pulled back a little bit from the high of early April as the energy market cooled off and beaten-down dividend stocks rallied. Enterprise reported solid earnings with profits per share in line with estimates and revenues a lot better as new projects came to fruition. Distributable cash flow was solid with 1.7 times distribution coverage and justified the recent 5.1% distribution increase. Capital investments were also aligned with strategic initiatives. Overall, the earnings didn’t reflect much change in an already solid story with good stock performance. The massive payout is well-supported, and the energy sector still looks good (This security generates a K-1 form at tax time.) BUY
FS KKR Capital Corporation (FSK)
Yield: 14.4%
Earnings
The ultra-high-yielding Business Development Company reported solid earnings that were roughly in line with estimates. FS also announced a second-quarter regular dividend of 0.70 per share and a supplemental dividend of 0.05, reflecting confidence in the BDC’s ability to cover the payout and support shareholders. The market seems to have liked it, and the stock is up about 2.5% since the earnings report on Friday. I’m hopeful the position will provide great dividend income combined with covered call premiums in the weeks ahead. BUY
Main Street Capital Corporation (MAIN)
Yield: 5.8%
Earnings
This Business Development Company reported stellar earnings last week that handily beat estimates. It paid a regular monthly dividend of 0.72 per share in the second quarter, marking a 6.7% increase year over year, as well as a 0.30 supplemental dividend in the quarter. But the stock has pulled back a couple of percent since the report. Perhaps there is some selling on the good news. MAIN has also shown resilience in tough markets. The safe and high yield pays dividends every single month with a strong possibility of supplemental dividends over the course of the year as well. BUY
NextEra Energy, Inc. (NEE)
Yield: 2.8%
The combination regulated and alternative energy utility reported earnings earlier this month that slightly missed on revenues but beat significantly on earnings. The stock has continued to move higher since. It was a solid report and NEE is now officially turning things around big time. NEE has been trending higher since the beginning of March and is up 34% in that time. It’s also up 57% from the low in October. 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. BUY
Qualcomm Corp. (QCOM)
Yield 1.9%
The mobile device chip king reported earnings that beat estimates, and the company raised earnings guidance for 2024. The market was thrilled, and QCOM has risen since the report to a brand-new 52-week high. The earnings growth was expected as a still somewhat weak smartphone market is getting better. But the enthusiasm is mostly about the rapid approach of AI-enabled smartphones and PCs. One analyst contends that an AI-driven super cycle for smartphones is coming next year. Qualcomm is at the leading edge of chips that enable AI for smartphones and PCs and should benefit mightily if such a cycle comes to fruition. QCOM is up 17% since late April and I don’t want to sell a covered call while it may have more upward price momentum. BUY
Realty Income Corp. (O)
Yield: 5.6%
Earnings
The floundering income REIT reported solid earnings last week with 33% revenue growth due to a recent acquisition and adjusted funds from operations growth of 5%. Metrics were pretty solid across the board with high occupancy rates and about 105% recapture on renewed leases. O didn’t get much of a bump so far on the report but it has been trending higher since the middle of April. The last two years have been among the worst in this stock’s history, which makes it dirt cheap ahead of an environment that will get better eventually. BUY
The Williams Companies, Inc. (WMB)
Yield: 4.9%
Earnings
The midstream energy company reported excellent earnings last week and the stock is again within pennies of the 52-week high. It soundly beat estimates on both net income and earnings per share and guided to the upper half of 2024 guidance. Williams also posted stellar 2.6 times dividend coverage. Things look good but, unfortunately, the stock is likely to be called on options expiration on Friday. More on that below. HOLD
Xcel Energy Inc. (XEL)
Yield: 4.0%
Rating change – “HOLD” to “SELL”
XEL had been a very strong performing utility with above-average growth from the clean energy side until the last two years. It has returned -21% over the past two years and -15% over the past year. It has been a tough couple of years for utility stocks amid inflation and rising interest rates. But the benchmark Utilities Select Sector SPDR Fund (XLU) has managed positive returns of 6% and 8% over the same periods respectively.
Sectors go in and out of favor, and utilities will have their day again. But the environment may continue to be tough for a while and XLU has been unable to outperform it. The tipping point is the recent liabilities involved with the Texas wildfires, which Xcel has admitted to being culpable in igniting. The extent of the liability is still a big unknown that will put a drag on stock performance. Despite solid earnings, XLE has floundered even while its peers have rallied in the improving interest rate outlook. It’s a judgment call that it isn’t worth it to wait out the trouble while many other stocks are getting good returns. SELL
Existing Call Trades
WMB May 17 $35 calls at $2.00 – Expiring
Although this stock was near a high when the calls were sold, it has shown no real signs of weakness or consolidation. It is now about 5 per share above the strike price. There are only three days until options expiration on Friday and it is highly unlikely that WMB shares will not be called. But we secured a high income and we still own EPD in the midstream energy space.
Current Recommendations
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Alexandria Real Estate Eq. | ARE | 12/19/23 | $129.54 | $115.69 | $140.00 | 4.39% | -8.91% |
| American Tower Corp. | AMT | 1/23/24 | $202.26 | $171.30 | $220.00 | 3.78% | -14.54% |
| Brookfield Infrstr. Cp. | BIPC | 2/27/24 | $32.64 | $30.87 | $40.00 | 5.25% | -6.79% |
| Enterprise Product Ptnrs. | EPD | 2/27/24 | $27.61 | $28.84 | $30.00 | 7.14% | 4.45% |
| FS KKR Capital Corp. | FSK | 4/23/24 | $19.42 | $19.33 | $20.50 | 14.49% | -0.46% |
| Main Street Capital Corp. | MAIN | 3/26/24 | $46.40 | $47.62 | $50.00 | 6.05% | 3.15% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $64.30 | $65.00 | 3.20% | -14.80% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $157.63 | $165.00 | 2.16% | 25.05% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $53.04 | $62.00 | 5.81% | -7.63% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $38.51 | $38.00 | 4.93% | 19.03% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $55.46 | NA | 3.95% | -1.60% |
| Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| WMB May 17th $35 call | WMB240517C00035000 | Sell | 3/12/24 | $2.00 | $4.65 | $2.00 | 5.62% |
| as of close on 05/10/2024 | |||||||
| SOLD STOCKS | |||||||
| X | 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 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95 | 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% |
| AbbVie Inc. | ABBV | Called | 7/25/23 | $141.63 | 3/15/24 | $160 | 15.11% |
| Marathon Petroleum Corp. | MPC | Called | 10/24/23 | $149.45 | 3/28/24 | $165 | 12.06% |
| 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 | 11/22/23 | $6.00 | 1/19/24 | $6.00 | 5.11% | |
| INTC $42.50 Jan 19th call | in-the-money | 11/29/23 | $3.50 | 1/19/24 | $3.50 | 8.71% | |
| ABBV $160 Mar 15th call | in-the-money | 1/10/24 | $7.00 | 3/15/24 | $7.00 | 4.94% | |
| MPC $165 Mar 28th call | in-the-money | 2/14/23 | $10.00 | 3/28/24 | 10 | 6.69% | |
| QCOM $170 Apr 26th call | out-of-money | 3/12/24 | $10.00 | 4/26/24 | 10 | 7.42% | |
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