A Forgettable Earnings Season
It’s earnings season. So far, it has mainly been just the big banks that have reported. And the results have been largely positive.
Earnings come at a time when the market can’t seem to make up its mind. Technology stocks have been strong since selling off last month. But the sector seems to get periodically knocked back before it really gains traction. Cyclical stocks are hot, and then they’re cold. Meanwhile, defensive utilities and healthcare stocks have been stronger.
For the first time in a while, there isn’t any real leadership. It seems like the market can’t decide and it’s waiting for earnings to tell it what to do. But I don’t think earnings will settle much. The market is rallying on the expectation of a full recovery as lockdowns and restriction abate. But the first quarter doesn’t include the anticipated booming recovery.
The excitement and the rally are about future quarters. The first quarter isn’t all that important in the aggregate. The market might bounce around for a while until it figures this out.
It’s not a bad time to write covered calls with the market indexes still near the highs. Last week, we wrote calls on mortgage REIT AGNC Corp. (AGNC) in order to make an already high income even better. There are also profitable calls to be written on other portfolio positions that have been trending higher including NextEra Energy (NEE), U.S. Bancorp (USB), and KKR & Co. (KKR). But I’m holding off, at least for right now.
Although the appreciation and call premiums available in these three stocks provide a strong income and a potentially high total return already, there is no good reason to believe these stocks won’t trend still higher in the days and weeks ahead.
Trades this month
March 24th
Purchased U.S. Bancorp stock (USB) - $53.47
Purchased KKR & Co. stock (KKR) - $47.98
March 26th
VLO March 26 $60 call at $6.50 - Expired
Valero Energy Stock (VLO) – Called
April 1st
CVX April 1 $95.50 call at $4.30 - Expired
Chevron Corporation stock (CVX) – Called
April 14th
Sell AGNC June 18th $17 call at $0.50 or better
Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 8.3%
The stock continues to slowly march higher ahead in an environment with strong economic growth and likely rising rate spreads on its mortgages. The mortgage REIT reports first quarter earnings next week, and a rate hike could be in the cards. AGNC cut the monthly dividend from 0.15 per share to the current 0.12 during the pandemic to be cautious. But the CEO has since said the cut was not necessary. Now that things are back to normal a hike is likely, and maybe along with next week’s earnings. HOLD
Brookfield Infrastructure Partners (BIP) Yield 3.7%
After underperforming the overall market for most of the recovery, BIP has performed a little better than the S&P 500 YTD. The stock has been a longer-term market outperformer and it should have good days in the weeks and months ahead. Earnings should be strong for the year as revenues from its transportation assets bounce back in recovery and new assets acquired on the cheap during the recession last year come online. The pending Inter Pipeline acquisition could be a needle-mover as well. BUY
Digital Realty Trust, Inc. (DLR) Yield 3.1%
Data centers are essential infrastructure that support the technological revolution that is only gaining steam going forward. Competition is fierce. But it should be. Technology is rapidly proliferating around the world and new technologies are also developing that will require still more support. Digital continues to acquire and open more facilities around the world and the bottom line should be healthy and growing. Sure, DLR has been an out-of-favor, languishing stock in recent months. But it should come back. It’s still a good time to buy. BUY
Enterprise Product Partners (EPD) Yield: 7.8%
Performance has been disappointing when compared to the round the rest of the energy sector had recently. But business is improving ahead of a robust recovery over the rest of the year. EPD is also well below the pre-pandemic price and trending the right way with a huge yield that is safe. A near 8% yield on a stock that should continue to trend higher is still a good deal. It also could get a nice bump when earnings are reported in a couple of weeks. BUY
KKR & Co. (KKR) Yield: 1.1%
All this best-in-class alternative investment financial company does these days is march slowly higher like clockwork. It’s been trending higher since the bear market lows last year and more steeply higher since late January. And why shouldn’t it? A full recovery and rising interest rates over the rest of the year is a great environment for financial stocks. And KKR is in the high-growth alternative investment area of that thriving sector. BUY
NextEra Energy Inc, (NEE) Yield 1.9%
This regulated and alternative energy utility has been one of the best safe stocks to own. We picked it up amidst a rare hiccup during the cyclical stock bender. It’s been trending sharply higher since mid-March. It should also get a jolt of popularity going forward as the new Administration in Washington puts a great emphasis on clean energy.
NextEra also picked up quality wind assets from Brookfield Renewable Partners (BEP) which the company said should increase cash flow going forward. BEP shares got punished for the sale, so it it seems the market thinks NEE got a deal. I’m still waiting for the stock to move higher to write calls. BUY
U.S. Bancorp (USB) Yield 2.9%
The bank reported solid earnings last week that beat on earnings and missed on revenues. Earnings were 1.45 per share versus consensus estimates of 0.92 and 0.72 earnings per share in last year’s first quarter. The biggest boost was lower provisions for loan losses as the environment turned out better than expected. Revenues were disappointing primarily because of lower net interest income, which should correct itself with higher rates in future quarters. One analyst raised the target price to 72 per share (currently 57).
But the quarter didn’t include the main event that should propel the stock, the full recovery and rising interest rates in the months ahead. Soon we will look to write calls on the position.
Yeah, this bank is looking strong. It’s still cheap ahead of a perfect storm of rising rates and a booming economy. We could absolutely pull the trigger here and get a fat call with the promise of a strong total return in a short time. But we’ve owned USB twice already in the portfolio. And, although we gotten great returns, I feel that we settled for too little each time. This time around I want more. The tape looks like it wants to keep giving us more. Let’s let it run further before writing a call this time. BUY
Existing call trades
Sell AGNC June 18th $17 call at $0.50 or better
The calls have trended higher since last week and currently fetch 0.53. The stock has trended higher for a long time with few stumbles. The position has already appreciated nicely since January and these calls are a way of making a great income even better.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 4/19/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 17.34 | 17.00 | 8.30% | 14.22% |
| Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 54.74 | 53.00 | 3.70% | 9.18% |
| Digital Realty Trust | DLR | 1/27/21 | 149.17 | 147.46 | 155.00 | 3.14% | -0.09% |
| NextEra Energy, inc. | NEE | 2/24/21 | 73.76 | 79.79 | 80.00 | 1.93% | 8.74% |
| Enterprise Product Partners | EPD | 3/17/21 | 23.21 | 22.97 | 25.00 | 7.84% | -0.69% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 57.72 | 55.00 | 2.91% | 8.76% |
| KKR & Co. | KKR | 3/24/21 | 47.98 | 53.31 | 50.00 | 1.09% | 11.11% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 4/19/21 | Buy Under or | Total Return |
| AGNC June 18 $17 call | AGNC210618C0017000 | Sell | 4/13/21 | 0.50 | 0.54 | 0.50 | 3.20% |
| 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% |
| Chevron Corp. | CVX | Called | 12/23/20 | 85.69 | 4/1/21 | 96.00 | 12.95% |
| 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% | |