Technology Comes Roaring Back
So much for the technology selloff. The sector dipped its toe into correction territory and has roared back with a vengeance.
A week ago yesterday, the technology-stock-heavy Nasdaq Index closed down over 10% from the recent high. It had been a long overdue pullback for a sector that has been on fire much of the past year. But it looks like the sector is right back in business after it got that correction over with. The Nasdaq has rallied about 8% in the past week and already recouped most of the short-lived losses.
At the same time, boiling hot energy stocks have pulled back over the past few days. The Energy Select Sector SPDR Fund (XLE) soared a remarkable 35% since February but has pulled back in the past few days. It could be that some of the cyclical plays are on the cusp of a normal consolidation after a huge surge in a short time. Or it could be that the cyclical ascent will continue, and energy shares will join them. We’ll see.
Aside for the big movers, there are some great stocks that have been neglected in the recent market. These stocks are still cheap ahead of what looks to be a very promising year for the economy. And several of these stocks are in the current portfolio.
This week we actually highlight an energy stock for purchase. It is one of the very best income stocks on the market that has been left out of the recent sector euphoria.
Trades this month
February 19th
BGS February 19 $27.50 call at $2.40 - Expired
B&G Foods (BGS) stock – Called
Sold CVX April 1 $95.50 call at $4.30 or better
February 24th
Purchased NextEra Energy stock (NEE) - $73.76
March 16th
Buy Enterprise Product Partners (EPD)
Trade Alert
Buy Enterprise Product Partners (EPD) Yield: 7.8%
Enterprise is one of the largest midstream energy companies in the country with a vast portfolio of service assets connected to the heart of American energy production. It has $36 billion in annual revenues from an unparalleled reach in the industry that is connected to every major US shale basin and 90% of American refiners east of the Rockies, and offers export facilities in the Gulf of Mexico as well.
This portfolio has owned this stock over the past year. Options were written on the stock that expired in September and the stock was called. The position, between the dividends and call premium and appreciation, returned over 20% in a relatively short amount of time. Although shares were called at a strike price of 20 and the stock is now over 23 per share, it should be a good time to buy the stock.
The energy sector had a huge surge that may be out of gas for the time being. It seems like a better time to write the calls than buy into the sector. But EPD has not gotten overextended in the near term like many other energy stocks.
EPD has been performing well of late. It’s up 15% since February 1st and 40% since the vaccine announcement in early November. But that has been a subdued move for the sector. The Energy Select Sector SPDR Fund (XLE) has soared 35% since February 1st and 80% since the vaccine announcement. And XLE represents the entire sector.
It hasn’t just been a rally in the cyclical energy sector. It been a super rally in the more economically sensitive energy stocks. The market is excited about rapid profit rebounds in a full recovery. But EPD profits are not rebounding that quickly because they never went down that much. Earning only fell about 10% in 2020, compared to massive crashes in commodity-price-sensitive energy stocks.
EPD is still participating in the sector rally, but not the excesses. It’s still priced around the January high. The stock is also still around 20% below pre-pandemic levels and over 40% below the all-time high.
The still seems poised to continue to move higher over the course of the year while paying a massive 7.8% yield that’s rock solid.
Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 8.8%
This mortgage REIT is delivering as advertised since being added to the portfolio. It has continued its very slow trend higher. It should. With a full recovery looming in the months ahead and interest rates on the rise, it’s the ideal environment for AGNC. It pays a huge yield on a monthly basis and is trending higher, so it should pay to be patient. We will wait for a higher price to write calls and assure a higher total return. BUY
Brookfield Infrastructure Partners (BIP) Yield 3.8%
I really like the prospects for this infrastructure partnership in the weeks and months ahead. To the untrained eye, BIP hasn’t done a damn thing in the past two months, except bounce around sideways. However, it weathered going out of favor beautifully. Defensive stocks have been lousy during the open-up trade bender. But BIP stood its ground. It should be a whole lot more popular with investors as high dividends and defensive earnings creep back into vogue. Infrastructure is a popular and increasingly trendy investment as well, and BIP is the best of the best. BUY
Chevron Corp. (CVX) Yield 4.6%
It could be the end of the recent energy surge. The sector has been on fire since the end of January. I believe these stocks still have a way to go over the course of the year. But this incredible move had to pause at some point. CVX still looks good for the intermediate term as it’s still below the pre-pandemic levels, and the environment ahead should be a lot better than that one. But an overdue consolidation may have arrived. We’ll see. HOLD
Digital Realty Trust, Inc. (DLR) Yield 3.5
This normally steady data center REIT got double-whammied. It was seen as a pandemic beneficiary as technology thrived and the stock exceled. After the vaccines, investors turned on many such stocks. Then, the REIT sector got further shunned in the cyclical rally. As a result of just near-term trends, DLR is still wallowing at a low price while the positive story is still intact. The growing number of connected devices and demand for technology infrastructure is rising steeply. Consider that energy and financial stocks were wallowing in oblivion a few months ago. Look what’s happening to them. BUY
NextEra Energy Inc, (NEE) Yield 2.1%
The recent market bias toward cyclical stocks has been so extreme that not only did the utility sector get beaten up, but the mania even took down NEE, which had previously been immune to struggles in the sector. The natural state of this alternative energy utility is to be an up-trending juggernaut. This recent diversion from the mean should be temporary. The stock bounced back from the recent lows quickly in the past weeks. The market could undo this latest aberration quickly at some point. A little patience should pay off. BUY
Valero Energy (VLO) Yield 4.8%
This refiner and high-leverage play on a full recovery may be finally cooling off. VLO has pulled back about 6% in the past few days, as of this morning. A consolidation at this point would be quite understandable. VLO had rallied about 50% since the beginning of February and 120% since the lows of last March. While the latest surge may be out of gas, the prospects for the rest of the year are still bright. VLO is still a long way below the pre-pandemic level and things stunk then. The rest of the year should be a much more profitable environment. BUY
Existing Call Trades
VLO March 26 $60 call at $6.50 or better
There are about 10 days left before the options expire with a stock price of 60 per share while the current share price is about 80 per share. Unless a meteor hits the earth in the next 10 days, VLO will be called if you sold the options. But the portfolio position will still provide a return of 27.4% since being added to the portfolio.
CVX April 1 $95.50 call at $4.30 or better
CVX is a similar story to VLO, albeit to a lesser extent. It’s the same story here. These calls expire in a little over two weeks at a strike price of 95.50 per share. The stock is currently 107 per share. It won’t take an act of God for the stock to close below the strike price on expiration, but it is highly unlikely. The stock had a massive short-term move and this position will still provide a strong return and income in a short period of time if the shares are called.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 3/16/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 16.48 | 17.00 | 8.81% | 6.94% |
| Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 52.58 | 53.00 | 3.95% | 4.25% |
| Chevron Corp. | CVX | 12/23/20 | 85.69 | 107.64 | 93.00 | 4.71% | 29.56% |
| Digital Realty Trust | DLR | 1/27/21 | 149.17 | 135.68 | 155.00 | 3.44% | -9.45% |
| Valero Energy Corp. | VLO | 8/26/20 | 53.70 | 79.32 | 60.00 | 4.87% | 47.37% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 3/16/21 | Buy Under or | Total Return |
| VLO Mar 26 $60 call | VLO210326C00060000 | Sell | 2/10/21 | 6.50 | 20.70 | 6.50 | 12.10% |
| CVX Apr 1 $95.50 call | CVX210401C00095500 | Sell | 2/19/21 | 4.30 | 16.10 | 4.30 | 5.02% |
| 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 | 38.00 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | 41.92 | 10/16/20 | 45.00 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | 82.41 | 10/16/20 | 88.00 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | 200.56 | 11/20/20 | 200.00 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | 91.04 | 12/31/20 | 100.00 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | 18.14 | 1/15/21 | 20.00 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | 39.66 | 1/15/21 | 40.00 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | 44.68 | 1/15/21 | 45.00 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | 26.79 | 2/19/21 | 28.00 | 4.42% |
| 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% | |