Earnings to the Rescue?
It’s earnings season.
This should be an interesting one. Earnings have saved and rejuvenated the bull market throughout the pandemic recovery. Can this earnings season save the current floundering market?
Stocks are up today because of optimism from the few companies that have reported so far. The expectations are for just 4.5% earnings growth on average for S&P 500 companies. Of course, earnings almost always exceed expectations. But this will still be the slowest growth since the fourth quarter of 2020 as there are much tougher comparisons to the opened-up economy a year ago.
The good news is that consumers are still loaded and willing to pay up, for the most part, amidst this high inflation. The takeaway will likely be that inflation isn’t killing the economy yet. The bad news is that continuing inflation and Fed rate hikes may spoil the party in future quarters.
Earnings could give this market a reprieve. We’ll see. But the main problem still remains. Inflation is likely to persist unless the Fed seriously slows the economy. That problem will haunt the market for the rest of the year at least.
That said, certain pockets of the market are thriving and will likely continue to do so in the months ahead. Our portfolio currently has three outstanding covered calls on stocks that have bucked the trend and performed brilliantly in this year’s market. But adjustments are being made. We are selling a stock that has been in the portfolio for more than a year as prospects are dampening.
Trades Past Month
March 23
Purchased Innovative Industrial Properties, Inc. (IIPR) - $196.31
Sold XEL May 20th $70 call at $3.00
April 6
Sell GSL May 20th $30 calls at $2.30 or better- Removed
April 13
SELL U.S. Bancorp stock (USB)
Stock Portfolio Recap
Enterprise Product Partners (EPD)
Yield: 7.1%
The good times keep rolling for this midstream energy partnership. It has been making a series of new 52-week highs. EPD has obviously been helped by the overall energy sector which is up about 40% YTD. But EPD keeps inching higher as the sector has leveled off because investors are also seeking out safety and income. Of course, EPD can bounce around in the near term. We’ll see how high this latest surge takes it. (This security generates a K-1 form at tax time). HOLD
FS KKR Corp. (FSK)
Yield: 11.0%
This high-yielding BDC continues to hold its own in a tough market. FSK has returned more than 11% YTD while its peer group is down 14% and the market is down over 8% for the same period. The resiliency comes from its strong portfolio of companies and the desirability of its yield. There are very few places to get an 11% yield and practically nowhere to get it with a stock that can be strong in an ugly market. HOLD
Global Ship Lease, Inc. (GSL)
Yield: 6.3%
The container ship company had been a stellar performer both over the last year and YTD in a down market. Container shipping rates remain very high and are likely to stay that way for a while as demand exceeds supply. In fact, the company once again upgraded earnings guidance for the year and the upcoming quarter. But GSL has been crushed recently, down 20% from the mid-March high.
There is no company-specific news. The likely reason for the plunge is an increasing fear of slowing global economy growth as the Fed hikes rates to fight inflation. Stocks levered to global trade have been under pressure. GSL had also taken a hit when the war began but recovered strongly after the initial panic waned. I believe the stock will recover from this because the container shipping business is likely to stay quite strong even with diminished global growth. BUY
Innovative Industrial Properties, Inc. (IIPR)
Yield: 3.7%
This newest portfolio addition is a great stock that has gotten cheap. It’s down 30% from the high. The fall is mainly because this market has been punishing last year’s big winners. There’s also some concern about federal marijuana legalization. But that is likely many years away. This REIT is still growing the business at a fevered clip. The market always rewards such things eventually and this stock has strong technical support at the current level. BUY
One Liberty Properties, Inc. (OLP)
Yield: 5.9%
This superior industrial REIT had taken it on the chin earlier this year as the REIT sector struggled. But REITs recovered a bit from the early months of this year. OLP had a good few weeks and rose sharply off the recent low. But it has been wallowing a bit again of late. It’s still a tricky environment but One Liberty still has a strong and growing business. I expect the stock to come back into favor at some point in the months ahead. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.0%
This former high-flyer has certainly been in the dumps lately. QCOM is down over 25% from the high. The stock finally capitulated to the weakness in the tech sector and then it got hit again as economic growth fears have increased over the past couple of weeks. The worry is slowing smartphone sales in 2023. But the company anticipated revenue growth of 27% and earnings growth of 39% in 2022 and it still sells at just 12 times earnings. It has also had a strong bounce higher in recent days. The good should outweigh the bad and we will hold for now. HOLD
Rating change “HOLD” to “SELL”
U.S. Bancorp (USB)
Yield: 3.6%
This regional bank giant has been under consistent pressure since the middle of January and is down over 20% from the high. Business has been strong at the bank with the only relative weak part being net interest income due to a flattening yield curve. But rates have been soaring of late. The problem is that economic growth concerns would eliminate an important part of the business that had previously been assumed.
You can’t fight the market. And USB has clearly been trending lower and recently broke through downside resistance. We still managed a solid income return on the stock as we have sold three calls on the position since it was added to the portfolio a little over a year ago. But the stock has broken below the initial purchase price with no sign of stopping. SELL
Visa Inc. (V)
Yield: 0.7%
This global payments company stock is bouncy but with solid prospects over the course of this year. It sold off after the initial panic from the Russian invasion but then recovered strongly. Lately it is being hampered by concerns about slowing global growth. But the international business is picking up strongly as Covid restrictions have largely been removed. The stock should be resilient in the absence of overwhelming negative developments like a global recession. HOLD
Xcel Energy Inc. (XEL)
Yield: 2.6%
It’s party time in XEL land. The stock has been making a series of new highs over the past several weeks. The reason is that both utility stocks and alternative energy stocks have been strong. Clean energy stocks got a boost as conventional energy prices are going through the roof and investors are gravitating toward the safety of utilities in this highly uncertain market. I like the stock longer term. But it could be near a short-term top. HOLD
Existing Call Trades
Sell EPD April 14 $24 calls at $1.25 or better
EPD is remarkably strong. It has picked up the pace and moved faster and higher than it has in previous energy rallies. EPD has soared to more than $2.50 per share above the strike price with less than three days to go until options expiration. These shares are highly likely to be called at that time. But we still locked in a great income and a solid total return.
Friday’s options expiration is shaping up to be a close call with this one. Shares are currently about $0.30 per share above the strike price but could easily fall below the 22.50 level by Friday, especially if the market has an ugly day or two. We’ll see. But either way we will lock in a great income.
Sell XEL May 20 $70 call at $3.00 or better
The stock is riding high now at more than $4 per share above the strike price. But XEL bounces around a lot and there is still more than five weeks to go before options expiration. The calls are currently selling at over $5 and are still worth selling if you haven’t done so already.| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Enterprise Product Ptnrs C | EPD | 3/17/21 | $23.21 | $26.44 | $25.00 | 7.10% | 23.49% |
| U.S. Bancorp | USB | 3/24/21 | $53.47 | $50.82 | $57.00 | 3.56% | -1.18% |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $136.09 | $140.00 | 2.00% | 2.86% |
| One Liberty Properties | OLP | 7/28/21 | $30.37 | $30.50 | $33.00 | 5.93% | 4.78% |
| Xcel Energy Inc. C | XEL | 10/12/21 | $63.00 | $74.73 | $67.00 | 2.62% | 20.28% |
| FS KKR Capital Corp. C | FSK | 10/27/21 | $22.01 | $22.65 | $24.00 | 11.04% | 9.17% |
| Visa Inc. | V | 12/22/21 | $217.96 | $211.40 | $225.00 | 0.70% | -2.85% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $23.55 | $28.00 | 4.34% | -5.65% |
| Innovative Industrial Props. | IIPR | 3/23/22 | $196.31 | $186.75 | $210.00 | 3.75% | -4.06% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| EPD Apr 14th $24 call | EPD220414C00023000 | Sell | 3/2/22 | $1.25 | $2.46 | $1.25 | 5.39% |
| FSK Apr 14th $22.50 call | FSK 220414C00022500 | Sell | 3/10/22 | $0.90 | $0.27 | $0.90 | 4.89% |
| XEL May 20th $70 call | XEL220520C00070000 | Sell | 3/24/22 | $3.00 | $5.29 | $3.00 | 4.76% |
| as of close on 4/12/2022 | |||||||
| 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% |
| 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% | |