Earnings to the Rescue?
The market has been rallying furiously over the past several days on earnings. Is this the Promised Land or more false hope?
It’s just the kickoff of the third-quarter earnings season and the nation’s major banks have reported. These banks are considered bellwethers for the U.S. economy and numbers are better than expected. The results are reviving hope among investors.
The hope is that a soft landing may be possible, at least as far as corporate earnings are concerned. Stocks have sold off a lot already. While the S&P 500 is only down 23% or so, many stocks are down a lot more than that. There is some hope that earnings will make it through this market cycle with far less damage than current prices indicate, and a bottom could be close.
I hope that turns out to be the case. But there are some other things to consider. These banks’ earnings averaged -13% year over year for the quarter. Most of that downside was caused by loan loss provisions. The good news is that the operational performance in the quarter was still much more solid than the bottom line indicates. The bad news is that these banks are pessimistic about future quarters.
Also, rallies like this are quite common in bear markets. There have been 100 days so far this year where the S&P posted a 1% gain compared to 54 times in all of 2021. The benchmark of 100 1% gains has been achieved only in bear markets like the Arab oil embargo, the financial crisis, and the pandemic.
There are still serious concerns about how hard this inflation will be to tame and how deep the recession will have to be. It’s too early to think this bear market is over, and we won’t see a new bottom, sorry. But the bulk of the selling is likely over. There will be great opportunities with the current low prices ahead of the next bull market at some point. But it is too early to drink the earnings Kool-Aid that has boosted the market in recent days.
Trades This Past Month
September 16
QCOM Sep 16th $145 calls at $11.75 – Expired
September 28
Purchased Realty Income (O) – $60.37
Portfolio Recap
Global Ship Lease, Inc. (GSL)
Yield: 8.7%
GSL sold off with the rest of the market but stayed above the July lows, indicating that a bottom may already be in. It’s true that shipping rates have fallen amid recession fears. But GSL already locked in higher rates than have existed for many years and added a significant amount of new higher-priced charters. Operationally, the company is strong and longer-term trends still favor container shipping. The stock has been trending higher all this month and hopefully is a long-term winner that already made a low. HOLD
Intel Corp. (INTC)
Yield: 5.6%
The stock continues to be under pressure along with the rest of the tech sector in a market where value and fundamentals don’t matter right now. The stock is also facing headwinds as the chip sector continues to face pressure in the slowing economy while the company is undergoing a massive expansion program. The short term is ugly, but the dividend should continue to be safe with a very low payout ratio. HOLD
ONEOK, Inc. (OKE)
Yield: 6.8%
OKE is negative for the year but has still vastly outperformed the overall market. But it is miles from the 52-week high, down 25%. The stock has also underperformed its midstream energy peers this year. The sector took a drubbing over the last several weeks, along with just about everything else. But this lagging performance is still hard to explain. Earnings in this natural gas arena are resilient and continued to grow through the pandemic. It pays a huge dividend and has automatic inflation adjustments built into its contracts. Markets can do anything in the short term, but rationality usually wins over eventually. BUY
Realty Income Corp. (O)
Yield: 5.4%
This legendary monthly income payer recently hit the 52-week low and remains a long way from the pre-pandemic high, despite having higher earnings. REITs have been under pressure from rising rates as it raises costs for growth projects. But Realty just made a large acquisition and should get strong growth because of that over the next year.
This stock has been clobbered. But this legendary income stock has been a remarkably consistent performer over the years. It has averaged a better than 14% average annual return since its inception in 1994. And that performance is a lot higher when it was purchased near the 52-week low. A great company with a fantastic track record is on sale. BUY
Star Bulk Carriers Corp. (SBLK)
Yield: 32.1%
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. Half of the position was sold to be cautious in this turbulent and unpredictable market. The stock also has another massive dividend coming next month. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.7%
This is a strong company in a beleaguered sector. The operational performance has been spectacular, and analysts were slobbering all over it before the sector went south. I’m not sure when the tech sector will truly turn around, but I know it will eventually. Meanwhile, QCOM is dirt cheap for the growth it offers in a sector that has been by far the strongest on the market for the past two decades and is only growing in dominance. HOLD
Visa Inc. (V)
Yield: 0.8%
As a cyclical stock, V is getting beaten up along with just about everything else in the market right now. But because of very strong fundamentals at the company and great prospects for growth even in a slowing economy, V should recover quickly when the market stabilizes and take off when it recovers. V has consistently been one of the first stocks to get back on track whenever the selling abates, and it should be a very strong performer on any rally. HOLD
The Williams Companies, Inc.
Yield: 5.8%
This midstream energy company in the form of a corporation is one of few stocks that has moved higher so far this month. It also managed to stay above the 52-week low during the selloff. Williams announced that it expected a strong third and fourth quarter and reaffirmed 2022 guidance near the high end of the previous range as the natural gas assets remain strong performers. WMB had great momentum before the recent selloff because it’s ideal for the current environment of inflation and recession. Hopefully, the stock will remain strong over the rest of the year. BUY
Existing Covered Call Trades
Sold OKE October 21st $65 calls at $3.40 or better
After selling this call near the high point of the range while things were good in the summer, OKE has gotten clobbered in the market selloff. It’s now about 10 per share below the strike price and options expiration is this Friday. It’s extraordinarily unlikely the stock will be called. We managed to grab a high income in a troubled market and the prospects for OKE should be solid going forward.
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 | $111.59 | NA | 2.69% | -14.72% |
| Visa Inc. | V | 12/22/21 | $217.96 | $185.25 | NA | 0.82% | -14.55% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $17.15 | NA | 8.67% | -28.69% |
| ONEOK, Inc. | OKE | 5/25/22 | $65.14 | $54.80 | $67.00 | 6.82% | -14.56% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $19.71 | NA | 32.06% | -33.33% |
| Intel Corporation | INTC | 7/27/22 | $40.18 | $26.42 | NA | 5.63% | -33.57% |
| The Williams Companies | WMB | 8/24/22 | $35.58 | $29.96 | $38.00 | 5.78% | -14.68% |
| Realty Income Corporaton | O | 9/28/22 | $60.37 | $57.49 | $63.00 | 5.36% | -4.36% |
EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| OKE Oct 21st $65 call | OKE221021C00065000 | Sell | 8/24/22 | $3.40 | $0.03 | $3.40 | 5.22% |
| as of close on 10/17/2022 | |||||||
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% | |