The Market Catches Fire
It’s a furious rally. The market is on fire. Last week’s inflation report ignited a surge that might last longer. Let the good times roll (for now).
October inflation numbers were reported last week and both top-line CPI and core inflation numbers were lower than expected. It reignited hope among investors that inflation has peaked and is on the decline and the Fed will stop raising rates sooner than previously expected.
The market tends to anticipate six to nine months into the future. By then, inflation could be under control and the Fed could be all done raising rates. The two bear market catalysts, inflation and Fed tightening, could be over and a new bull market could begin. Prices are still dirt cheap and there may be a light at the end of this dark tunnel, at least that’s the hope.
It’s good news. But let’s not pop the Champaign corks just yet. The market rallied 17% from the low this summer on similar hopes. Those hopes were dashed, and the market fell back to a new low. The S&P has now rallied 15% from the last low. It could be another bear market head-fake.
It remains to be seen if inflation will continue falling. We also don’t know to what extent the economy will slow. A deeper recession will kill earnings. And we don’t know how long it might last. We might not be out of the woods yet, but this is a step in the right direction.
The rally has lifted call premiums as more investors are willing to bet on higher prices in the future. In this issue, we are seizing the current opportunity on selling a call on midstream energy portfolio position ONEOK (OKE). Although I like the future prospects for the stock, I don’t trust this market. It’s a great opportunity to generate a high income while the getting is good. Let’s take it.
Trades past month
October 21st
OKE October 21st $65 calls at $3.40 – Expired
October 26th
Purchased Xcel Energy (XEL) - $62.57
November 9th
Purchased Brookfield Infrastructure Corp. (BIPC) - $42.43
November 15th
Sell OKE January 20th $65 calls at $3.70 or better
Trade Alert
Sell OKE January 20th $65 calls at $3.70 or better
Expiration date: January 20th
Strike price: $65
Call price: $3.70
ONEOK, Inc. (OKE)
This is the second call sold on this position that was established in May. I still like the stock very much as the business is recession-resistant and the dividend is high and safe. It should be ideal for the current environment. But I don’t trust this market, especially after a 15% rally. If the rally continues, the whole portfolio will benefit. Let’s make sure we generate a high income in case the rally peters. Plus, even if OKE gets called away, we still have another midstream energy company in The Williams Companies (WMB).
Here are the three scenarios.
1. The stock closes above the $65 strike price at expiration.
Call premium: $3.70
Dividends: $1.87
Appreciation: -$0.14 ($65.00 strike price minus $65.14 purchase price)
Total: $5.43 (total return will be 8.35% in 8 months, or $8.83 and 13.56% if you sold the earlier call that expired in October)
2. The stock price closes below but near our $65 strike price.
Call premium: $3.70
Dividend: $1.87
Total: $5.57 (total income of 8.55% in 8 months, or 13.8% with the earlier call)
3. The stock price declines.
There will be $5.57 in income to offset the decline.
Portfolio Recap
Brookfield Infrastructure Corporation (BIPC)
Yield: 3.22%
The infrastructure company reported terrific earnings early this month. It soundly beat expectations with funds from operations (FFOs) growth of 24% for the quarter. That’s impressive considering BIPC had fallen more than 20% from the high over the past couple of months. Rising interest rates soured investors as fixed-rate alternatives became more attractive.
But the selling was unjustified as Brookfield’s crucial assets will continue to deliver steady earnings through a recession, it has inflation adjustments built into its contracts, the dividend is solid, and the stock is cheap now. Although BIPC has gotten a big bump since being added to the portfolio last week, it still sells at a great value ahead of a likely period of relative outperformance. BUY
Global Ship Lease, Inc. (GSL)
Yield: 7.9%
This container shipping company got crushed in the cyclical selloff earlier this year. But it may have bottomed out. It’s up over 28% from the 52-week low and has been trending consistently higher since the end of September. The intermediate and long term look solid for the company as shipping has a very favorable supply/demand dynamic and the industry is likely in a cyclical bull market. The near-term performance will be more dependent on the sustainability of the rally and the severity of the global economic slowdown. HOLD
Intel Corp. (INTC)
Yield: 4.8%
This stock may well have bottomed out. Earnings were terrible again but that’s probably already baked into the price. The near term is ugly, but the dividend is safe, and the future could be very bright. INTC currently sells near book value. It also has significant promise in its growing foundry business that should be further aided by government subsidies. The long term is promising. It’s the short term that has been the problem. But INTC has quietly moved nearly 30% higher off the low of last month. HOLD
ONEOK, Inc. (OKE)
Yield: 5.8%
This midstream energy stock has been quietly killing it. OKE has returned about 16% YTD in a lousy year for the market. But it has been somewhat volatile after a blowout year in 2021. OKE is still more than 13% below the 52-week high but has been on the move lately. It’s up a whopping 30% since late September. And the future looks bright.
Earnings are solid and demand for natural gas remains strong and will likely remain so even in recession. BUY
Realty Income Corp. (O)
Yield: 4.6%
Earnings for this legendary income REIT surpassed estimates as it declared its 100th consecutive quarterly dividend increase. Revenue soared 80% as results continue to reflect the merger with VEREIT that was completed a year ago. Normalized funds from operations per share rose 9% compared to last year’s third quarter and 7.7% from the last quarter. Realty’s typical tenants of drug stores, convenience stores and supermarkets enabled it to continue raising the dividend through the pandemic and should prove resilient in this recession. BUY
Star Bulk Carriers Corp. (SBLK)
Yield: 31.8%
Most of what I said about GSL above is also true for SBLK. The intermediate-term prognosis remains excellent for dry bulk shipping while the market is struggling with worries about the U.S. and global economies. But dry bulk shipping still has a highly favorable supply/demand dynamic despite rates having dipped recently. The stock has been on the upswing as cyclical stocks have been rallying after the inflation report. Star Bulk reports quarterly earnings tomorrow. It could be a boost. Plus, the ex-dividend date is coming up later this month and the dividends are massive. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.7%
It’s been a bad year for QCOM and technology in general. QCOM is down over 30% YTD. The company also forecasts lower guidance and anticipates a significant slowdown in profit growth in the quarters ahead as comparisons get tougher and a weaker economy is hurting smartphone demand. That’s the bad news. The good news is that the bad news is already in the stock price. QCOM now sells at just 11 times forward earnings. And the sector may have already bottomed out, setting up for huge returns when things turn around. HOLD
Visa Inc. (V)
Yield: 0.9%
Visa reported earnings that once again killed it. Revenue spiked 22% and earnings were up 27% from last year’s quarter. The payments processing giant continues to benefit from the end of covid restrictions despite the slower economy. V got a nice bump after earnings. But the situation is murkier going forward as the U.S. and global economies continue to deteriorate. The recent market rally is more evidence that V quickly benefits when the market turns. It’s been on a roll that hopefully lasts a while longer. HOLD
The Williams Companies, Inc. (WMB)
Yield: 5.0%
This midstream energy company has quietly been on fire. It’s up almost 40% from the low of late September and is within about 10% of the 52-week high. Williams reported earnings that topped estimates with earnings growth of 15% over last year’s quarter. A big reason for the strong earnings is resilient natural gas demand, something that is likely to endure through the recession based on shortages overseas. The stock is getting a bump and the good times should continue. BUY
Xcel Energy Inc. (XEL)
Yield: 2.9%
This clean energy utility was oversold in the September market plunge. It was added to the portfolio because it was timely after a huge selloff that should prove to be unjustified. Interest rates have been plunging and XEL has rallied strongly off the recent low. The near term is shaping up well and the longer-term prognosis is also excellent. It should also benefit from new legislation from Washington that will reduce the costs of its considerable clean energy production. The stock should be solid in a recession, and we got in at a good price. BUY
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 | $120.80 | NA | 2.47% | -7.69% |
| Visa Inc. | V | 12/22/21 | $217.96 | $206.86 | NA | 0.88% | -4.36% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $18.25 | NA | 7.87% | -24.11% |
| ONEOK, Inc. | OKE | 5/25/22 | $65.14 | $64.38 | $67.00 | 5.78% | 1.96% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $20.58 | NA | 31.83% | -30.38% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $30.35 | NA | 4.80% | -22.70% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $33.77 | $38.00 | 4.99% | -3.83% |
| Realty Income Corporaton | O | 9/28/22 | $60.37 | $64.08 | $63.00 | 4.58% | 7.02% |
| Xcel Energy Inc. | XEL | 10/26/22 | $62.57 | $66.83 | $65.00 | 2.89% | 6.81% |
| Brookfield Infrastructure corp. | BIPC | 11/9/22 | $42.43 | $44.74 | $46.00 | 3.22% | 5.44% |
EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| OKE Jan 20 $65 call | OKE230120C00065000 | Sell | $3.70 | $3.69 | $3.70 | 5.68% | |
| as of close on 11/14/2022 | |||||||
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% |
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./01/2021 | $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% | |
| QCOM Sep 16th $145 call | out-of-money | 7/20.2022 | $11.75 | 9/16/22 | 11.75 | 8.73% | |