A Shifting Market
It’s been a choppy market.
Technology stocks are still foundering, down over 8% from the highs of six weeks ago. Meanwhile, the torrid rally in the energy sector has run out of gas for now. That sector has pulled back about 8% from the recent high. Without either of those two sectors driving the market higher, the S&P 500 has been sort of moving sideways.
Market leadership appears to be shifting. It’s interesting to note that utilities have been the top performing market sector over the past month and week. Other safe sectors have been picking up as well. Many stocks that were left out of the cyclical rally over the past several months are gaining strength.
That’s good news for several of the stock currently in the portfolio. They were purchased at attractive valuations while being neglected over the past couple of months. As those stocks move higher, we will look to write covered calls at attractive valuation and boost current income.
The financial sector looks especially good. Although they have benefitted from the cyclical rally, those stocks haven’t gotten overextended in the near term like the energy sector. In fact, the sector hasn’t really pulled back at all and continues on the uptrend that started in the beginning of February.
The shifting market seems to still like financials and the sector still has momentum. The recent portfolio additions U.S. Bancorp (USB) and KKR & Co. (KKR) have already moved higher in the past week and should offer great call-writing opportunities if they continue to move higher.
Trades this month
March 16th
Buy Enterprise Product Partners (EPD)
March 24th
Buy U.S. Bancorp stock (USB)
Buy KKR & Co. stock (KKR)
March 26th
VLO March 26 $60 call at $6.50 - Expired
Valero Energy Stock (VLO) – Called
Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 8.5%
It’s the early stage of an economic recovery. The yield curve typically steepens at this phase (the difference between long and short-term rates increases). AGNC greatly benefits from the steeping curve as it borrows money at short-term rates and buys long-term mortgages. The curve is steepening already and will very likely steepen more in the quarters ahead. It’s an ideal environment to buy this high-yielding mortgage REIT. BUY
Brookfield Infrastructure Partners (BIP) Yield 3.8%
Although this stock has trended mostly sideways since November. It is still in a longer-term uptrend. In fact, BIP just made a new all-time high last week. It hung in there nicely when the recent market rotation wasn’t in its favor. And it’s poised for better things ahead. The infrastructure partnership should be an earning bump this year as its energy and transportation assets recover and recent acquisitions come online. It’s a tested and true player in a subsector that should get hotter going forward. BUY
Chevron Corp. (CVX) Yield 4.8%
Yeah, the recent surge is over. It got all the way to 112 per share a couple of weeks ago, for a 30% upward move in six weeks. CVX has since pulled back to 106 per share. This consolidation is to be expected after such a big move, and it’s not like the stock is falling apart. Of course, we sold the April 1st calls at a 95.50 strike price and the stock is very likely to be called on Friday. We got a sweet income and total return in a very short period of time. HOLD
Digital Realty Trust, Inc. (DLR) Yield 3.2
This data center REIT is actually having a pretty good month while the market wallows. It’s up over 15% since March 3. DLR had been a superstar performer during the pandemic bear market last year but had been trending down since last summer. The stock is near the top of its recent range. We’ll see if it continues to bounce and falls back or if it breaks out to a new level. If it breaks out more, we’ll sell calls. If not, DLR is a still a great stock to have in case the market turns south, with a beta of just 0.11. BUY
Enterprise Product Partners (EPD) Yield 8.0%
This midstream energy giant has been trending higher since November, albeit slowly. Given the promising environment of a likely full economic recovery in the months ahead, business should continue to improve and the stock should trend higher. At the same time. EPD pays a huge 8% yield that’s very safe. We’ll collect the dividend and sell a call when the time is right. BUY
KKR & Co. (KKR) Yield: 1.20%
This new addition is a fantastic company and I like the timing. Financial stocks should continue to outperform as interest rates trend higher and the economy gains traction. KKR is also the best player in the rapidly growing alternative investment business. It’s well positioned in both the short and longer terms. We will wait for a higher price to write the calls and ensure a high total return. BUY
NextEra Energy Inc, (NEE) Yield 2.1%
I believe we got into this regulated and alternative energy utility at a cheap price amidst a rare dip. Investors love the combination of stable earnings and exposure to the high-growth clean energy business. NEE had long been an up-trending juggernaut, until it finally ran into a market phase that didn’t like it. As the market inevitably changes its personality in the weeks and months ahead, NEE will likely come back into vogue. It’s defensive and a conservative way to play the exciting growth in alternative energy. We’ll wait until the stock resumes its uptrend to sell calls. BUY
U.S. Bancorp (USB) Yield 3.0
The best-in-class large regional bank has been in an uptrend since last September, and a steep uptrend since the beginning of February. It should be a clear beneficiary of the current environment as the economy gains traction and interest rates trend higher. And while the market has gotten choppy late, USB has been powering on. We already owned the stock in the portfolio twice. But this time around I think it makes sense to be more patient and wait for a higher price to write the calls and assure a higher total return and income. BUY
Existing Call Trades
VLO March 26 $60 call at $6.50 - Expired
- Call premium: $6.50
- Dividend: $0.98 (paid Dec. 9)
- Dividend: $0.98 (paid Mar. 4)
- Appreciation: $6.30 ($60 strike price minus $53.70 purchase price)
- Total: $14.76 (total return of 27.4% in seven months)
CVX April 1 $95.50 call at $4.30 or better
This stock is likely to be called on Friday with a strike price of 95.50 and a current price of 106 per share. The stock has been weakening but it has since shown resilience and bounced back. That’s fine. If you own the stock and sold the calls at the suggested levels, you will have an 18% total return in just about two months.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 3/30/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 16.77 | 17.00 | 8.46% | 9.63% |
| Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 53.01 | 53.00 | 3.83% | 5.49% |
| Chevron Corp. | CVX | 12/23/20 | 85.69 | 106.17 | 93.00 | 4.80% | 26.50% |
| Digital Realty Trust | DLR | 1/27/21 | 149.17 | 141.59 | 155.00 | 3.21% | -2.26% |
| NextEra Energy, inc. | NEE | 2/24/21 | 73.76 | 74.21 | 80.00 | 2.06% | 1.94% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 55.80 | 55.00 | 3.02% | 3.98% |
| KKR & Co. | KKR | 3/24/21 | 47.98 | 49.10 | 50.00 | 1.19% | 1.17% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Buy Under or | Total Return |
| CVX Apr 1 $95.50 call | CVX210401C00095500 | Sell | 2/19/21 | 4.30 | 11.20 | 4.30 | 5.02% |
| As of Close on 3/29/21 | |||||||
| 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% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | 53.70 | 3/26/21 | 60.00 | 11.73% |
| 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% | |