Markets Grapple with Another Bad Headline
The market was already struggling after the Fed’s “higher for longer” comment about interest rates. Now it’s getting hit with ugly headlines regarding the situation in Israel.
Geopolitical risks are always out there, and they act up occasionally. Hopefully, this new Middle East situation won’t expand into a wider conflict. There is also the Ukraine conflict. These are risks that could develop into a much bigger problem. Even if they don’t, there is still the interest rate and inflation situation.
Interest rates are now at the highest level in more than 16 years. The average 30-year mortgage rate is now well over 7%. Lending rates across the board are higher than they’ve been in a decade and a half. That makes all things that people borrow money to buy less affordable, and demand will inevitably drop. Consumption is 70% of GDP.
The market doesn’t like these high rates either. They pressure the valuation of growth stocks, including the technology sector which is the largest and has driven the market for the last decade and a half. Defensive dividend stocks are also under pressure as fixed rate alternatives become more attractive.
But this economy has proven to be resilient. Stocks have still rallied 12% higher YTD. The market tends to be very surprising and you can’t write off good performance in the months ahead. But this portfolio will continue to act cautiously under the circumstances by using strength in individual positions to sell high-priced covered calls and get a high income.
Eventually, the market will turn around. It always does. In the meantime, the portfolio will focus on income and targeting buying opportunities in stocks.
Past Month Activity
September 15
OKE Sep 15 $65 calls at $3.20 – Expired
ONEOK Inc. stock (OKE) – Called
September 26
Sell DLR October 20 $130 at $6.00 – Removed
Purchased Tractor Supply Company (TSCO) - $203.03
October 2
NextEra Energy (NEE) – Rating change “BUY” to “HOLD”
Portfolio Recap
AbbVie Inc. (ABBV)
Yield: 4.0%
So far, this cutting-edge biopharmaceutical company stock is getting through this challenging year in decent shape. It has returned -5% YTD. But it has been a lot better over the last two months when it has been up over 9%. Healthcare is a good sector to be in when the overall market struggles. Shrinking Humira revenues should be overcome with its strong new drugs and pipeline in the future. The recent solid earnings report emboldens the notion that the revenue drop from the Humira patent expiration will be temporary and AbbVie will turn the corner before long. BUY
Digital Realty Trust (DLR)
Yield: 4.2%
This data center REIT has recently given way to the tough market for technology stocks amid rising interest rates. DLR has pulled back 11% since the end of August as growth rates are being discounted. But the operational performance of the company has been solid. Markets go up and down and sectors rotate. But this is a solid REIT with a good yield and a sizable additional growth catalyst from significantly increasing artificial intelligence spending. BUY
Hess Corporation (HES)
Yield: 1.2%
The energy exploration and production company stock hit a new 52-week high last month and then pulled back along with oil prices. The price per barrel of WTI crude oil fell more than $10 from over $93 to under $83 as investors feared high interest rates would slow the economy and energy demand. But prices are up sharply to start the week because of fears that the situation in Israel could lead to a wider conflict in the Middle East. We’ll see if high interest rates or geopolitical turmoil win out in the next couple of weeks. BUY
Intel Corp, (INTC)
Yield: 1.4%
After a 15% pullback in September, the bleeding has stopped and INTC has been rallying higher in a tough market. The stock had a huge spike higher in the late summer and a pullback after such a move is normal, especially in a lousy market. The fact that INTC is avoiding falling back into the abyss inspires confidence that the stock is cheap ahead of a brighter future and investors are interested. BUY
NextEra Energy, Inc. (NEE)
Yield: 3.8%
These are dark days for NEE that keep getting worse. The stock was already wallowing near the 52-week low when things turned much uglier. The stock has fallen 28% in the last couple of weeks. Utility stocks were struggling as the rising interest rates soured investors on these dividend stocks as fixed rate alternative become more attractive. Then NextEra got bad news. And bad news is disastrous in a stock and sector already out of favor.
The downturn was triggered by a report from its subsidiary, NextEra Energy Partners, LP (NEP). The MLP announced that it is cutting the projected distribution growth rate from 12% to around 6%. The subsidiary cited higher interest rates for the decision. Investors fear that slower subsidiary growth will negatively affect the parent company’s growth rate. NextEra is sticking with its growth projections for now, but the market doesn’t believe them.
The stock now sells near the cheapest valuations ever. We will hold the stock for a bounce back for now. HOLD
Realty Income Corp. (O)
Yield: 6.1%
This rock solid, legendary income REIT has not lived up to its reputation of late. O just hit a brand-new low that is the lowest price for the REIT since the pandemic bear market more than three years ago. Defensive stocks have been poor performers all year. But operational performance has been sound as earnings were solid with a stellar 99% occupancy rate for its properties and an additional $3.1 billion invested in the quarter in 710 properties. O has moved higher from the low. Maybe a great track record and a 6% dividend can perk enough investor interest to drive the stock higher from here. BUY
Tractor Supply Company (TSCO)
Yield 2.0%
The farm and ranch company stock has been getting slapped around as investors are worried about the continued resiliency of the consumer. But Tractor’s rural consumers have already been weak for a while and the company has been successfully compensating with its vast array of staple products. Last quarter, the company delivered 8.5% EPS while average S&P 500 earnings were down. TSCO should be solid in just about any environment with a low beta and a highly resilient product base. BUY
Qualcomm Corp. (QCOM)
Yield: 2.9%
The chipmaker stock continues to struggle through this year. It has returned just 1.7% YTD while the technology sector is up more than 30% over the same period. The sector is being driven by stocks with exposure to AI that are benefiting right now. It’s a little soon for Qualcomm. The company is highly dependent on smart phones. And sales have been falling as the 5G cycle comes to an end and the global economy is sputtering. But smartphone sales may have bottomed out and QCOM could benefit mightily and move fast when things turn around. BUY
The Williams Companies, Inc. (WMB)
Yield: 5.3%
Midstream energy companies are dividend stocks that have held up relatively well in the market despite rising interest rates. WMB is still trading within 4% of the 52-week high. It is likely that strength in the more commodity price-sensitive energy stocks are helping the stock. It also operates in an inflation-resistant business and revenues should remain solid even in a slow economy. Earnings were solid and recent expansion and acquisition activity bodes well for growth in 2023 and 2024 beyond what was expected. BUY
Xcel Energy Inc. (XEL)
Yield: 3.7%
2023 continues to be very ugly for this clean energy utility as well, although not nearly as bad as NEE. XEL has been trending lower since the beginning of April and hit a new 52-week low amid the recent market and sector tumult. This is one of the best utility stocks to own and the recent week’s debauchery may prove to be very temporary. XEL is now selling close to the pandemic bear market lows of three years ago ahead of a likely slowing economy. BUY
Existing Call Trades
Sell HES October 20 $155 calls at $9.00 or better
It looks like a very good idea to have sold calls on stocks near the high before the market turned ugly. Although energy prices are still high and there is reason to believe they could go still higher in the months ahead, this market is proving to be unforgiving just about everywhere. Much will depend on the direction of oil prices over the next few weeks to determine if these shares are called.
Sell INTC October 20 $35 calls at $3.50 or better
Despite the recent market and technology sector selloff, INTC is still hanging tough above the strike price. These shares had big a big rally to a new 52-week high when the calls were sold, and they were deep in-the-money calls. Unless this market turns around in the next few weeks, there is a good chance INTC closes below the strike price at options expiration.
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 | $110.88 | $130.00 | 2.90% | -13.03% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $36.19 | $35.00 | 1.39% | -5.95% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $33.68 | $38.00 | 5.43% | 1.44% |
| NextEra Energy, Inc. | NEE | 4/25/23 | $77.50 | $50.24 | NA | 3.78% | -34.58% |
| Hess Corporation | HES | 6/6/23 | $132.25 | $145.65 | $140.00 | 1.20% | 10.79% |
| Realty Income Corp. | O | 6/27/23 | $60.19 | $50.11 | $62.00 | 6.15% | -15.22% |
| Digital Realty Trust | DLR | 7/18/23 | $117.31 | $117.37 | $125.00 | 4.24% | 1.00% |
| AbbVie Inc. | ABBV | 7/25/23 | $141.63 | $148.24 | $150.00 | 3.99% | 4.67% |
| Xcel Energy Inc. | XEL | 8/22/23 | $57.95 | $57.35 | $65.00 | 3.72% | -0.16% |
| Tractor Supply Company | TSCO | 9/26/23 | $203.03 | $204.47 | $215.00 | 2.02% | 0.71% |
Existing Call Trades | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| INTC $35 Oct 20th call | INTC231020C00035000 | Sell | 9/8/23 | $3.78 | $1.72 | $3.00 | 9.41% |
| HES $155 Oct 20th call | HES231020C00155000 | Sell | 9/8/23 | $9.00 | $0.65 | $9.00 | 6.81% |
| as of close on 10/06/2023 | |||||||
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//2023 | $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% |
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% | |
| 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 | 7/20.2022 | $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% | |
| 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 | 3.2 | 4.92% | |