A Pause Near the Top
The market continues to forge nowhere. The S&P 500 is still below the May 7th high, but it’s only less than 1% below the high. It stopped going up. But it isn’t going down.
The furious upward pace couldn’t last. And it’s encouraging that the market hasn’t even pulled back. But stocks continue to drift sideways as investors ponder the future.
The market anticipates and is looking toward the end of this year. At that point, the torrid economic recovery will have peaked and economic growth will be slowing. What will drive stocks higher then?
While the best economic growth in decades may be faded by the end of the year, it might still be a good environment for stocks. The economy should still be expanding at a good pace as it continues to make up for lost time. Interest rates are likely to still be low, even if higher than current levels.
There’s enough concern for the bull march to run out of steam, but not enough to really pull back. At least, that appears to be the situation right now. While anything is possible, there is a good chance that the quick and easy gains of the last year are gone, at least for the most part. We may be heading to a more normal market where gains are harder to come by and it matters more which stocks you own.
A market like this doesn’t tend to provide good call writing opportunities. Right now, the better opportunity is in accumulating stocks. Several other portfolio positions have not moved of late and are still in the buy range including Digital Realty Trust (DLR), NextEra Energy (NEE), and Enterprise Product Partners (EPD). As well, it’s a great time to accumulate newer portfolio additions Qualcomm (QCOM) and ONEOK Inc. (OKE).
Trades this month
May 4th
Buy Qualcomm stock (QCOM)
May 26th
Buy ONEOK stock (OKE) - $52.51
Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 7.8%
After a year-long ascent, this mortgage REIT is almost back to the pre-pandemic high. And it may well start to run into more resistance. However, AGNC is still well below the price it achieved years earlier ahead of an environment that is likely better for all things mortgage REIT. Even if it runs out of gas in the near term, I still like the prospects for the stock over the course of the rest of this year. HOLD
Brookfield Infrastructure Partners (BIP) Yield 3.8%
Sure, this infrastructure partnership is still at the same price level as late March. But it’s still in an uptrend because it graduated to a higher sideways range. It’s not exciting. But it gets the job done. BIP should continue to trend higher as earnings will likely improve as its transportation assets recover and new investment come online and feed the bottom line. We will patiently wait for the stock to inch up to a level where the call premiums are desirable. BUY
Digital Realty Trust, Inc. (DLR) Yield 3.1%
This is another slow-mover that’s going in the right direction. It’s bouncing around in an upward trend since bottoming last December. DLR is desirable because earnings are growing, it’s a resilient and defensive business, and it tends to move independently of the overall market. At some point it should thrust to a higher level and there will be a good call writing opportunity. BUY
Enterprise Product Partners (EPD) Yield 7.6%
The good times for Enterprise, and other midstream energy companies, may finally be upon us. The high yield in this low-yield world is becoming increasingly irresistible. EPD just made a new 52-week high and is up over 20% YTD. Yet, the stock price is still a long way from the pre-pandemic price ahead of an environment that is likely to be a lot better. BUY
KKR & Co. (KKR) Yield 1.0%
After a big run up from late January until early May, KKR is still a couple of dollars below the May 7th high. It is consolidating at this point after we wrote the calls. The stock still looks strong for the rest of the year ahead of a very favorable environment. Financial stocks should continue to thrive and KKR is a high-growth element of the asset managing business. HOLD
NextEra Energy Inc, (NEE) Yield 2.1%
This combination alternative energy utility stock had a nice rebound from the recent lows until the middle of April. It has since pulled back again. It appears to be a more sustained bout of weakness than previously expected. It’s a rare departure from the normal uptrend, and it’s happening ahead of a very promising environment for alternative energy stocks. Washington will likely not only offer tax breaks and other goodies but should make the sector stand out to investors. BUY
ONEOK, Inc. (OKE) Yield 7.1%
Normally, I’d say a midstream energy company like this is recovering from the pandemic and looking ahead to much better times over the course of the year. But ONEOK actually grew earnings in 2020. The stock price took a beating last year, but earnings didn’t. Meanwhile, despite moving a lot higher since November, OKE is still a long way from the pre-pandemic price. The yield is also safe as the company has raised or maintained the payout for 25 years, including raising it during the pandemic. BUY
Qualcomm (QCOM) Yield 2.0%
I see this chip maker as a well-positioned company in the midst of a very profitable 5G rollout. Earnings last quarter were fantastic as the company piles up royalties from the sale of new 5G phones and should continue to do so for another year. QCOM has been dragged down lately because of the consolidation in the technology sector. But once the smoke from the current headlines fades, technology will still be where the long-term growth is. Qualcomm should also benefit as 5G becomes a bigger story in the post-pandemic market. BUY
U.S. Bancorp (USB) Yield 2.8%
The rapid ascent since late January has petered out over the last month or so. USB ran all the way back to the pre-pandemic high and slightly beyond. Now the stock is encountering some resistance, although it isn’t really pulling back. The quarters ahead continue to look bright for the stock as the economy kicks into high gear and interest rates likely trend higher. I still like the stock, but it may go sideways for a while. HOLD
Existing call trades
Sell AGNC June 18th $17 call at $0.50 or better
The positive earnings report as well as the strong economy and likely inflation has helped this stock move higher since we wrote the calls. The premium is priced well above the target level at 1.54. Many of the outstanding calls are being exercised early as investors find it advantageous to acquire the stock and collect the monthly dividend. It’s rare but calls are occasionally exercise early.
Sell KKR June 18 $55 calls at $3.00 or better
As I mentioned above, KKR may have topped out in the near term. It has been pulling back lately and the calls are priced well below the target at 1.54. The stock is currently about a dollar higher than the strike price and expiration is in a little less than three weeks.
Sell USB June 18 $57.50 calls at $2.80 or better
USB has moved higher since we wrote the calls, and the premiums are still above the target price at 3.70. At this point, it appears that the stock will likely be called as the current price is 3.50 per share above the strike price. But there are still almost three weeks to go before expiration.
CIA STOCK PORTFOLIO | |||||||
Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 5/31/21 | Buy at or Under Price | Yield | Total Return |
AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 18.54 | 17.00 | 7.77% | 20.76% |
Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 54.22 | 53.00 | 3.76% | 6.47% |
Digital Realty Trust | DLR | 1/27/21 | 149.17 | 151.56 | 155.00 | 3.06% | 0.22% |
NextEra Energy, inc. | NEE | 2/24/21 | 73.76 | 73.22 | 80.00 | 2.10% | -2.01% |
Enterprise Product Partners | EPD | 3/17/21 | 23.21 | 23.61 | 25.00 | 7.62% | 6.51% |
U.S. Bancorp | USB | 3/24/21 | 53.47 | 60.78 | 55.00 | 2.76% | 17.22% |
KKR & Co. | KKR | 3/24/21 | 47.98 | 55.69 | 50.00 | 1.04% | 15.85% |
Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 134.54 | 140.00 | 2.02% | -3.60% |
ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 52.54 | 60.00 | 7.09% | |
EXISTING CALL TRADES | |||||||
Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Price on 5/31/21 | Recent Price | Buy Under or | Total Return |
AGNC June 18 $17 call | AGNC210618C0017000 | Sell | 4/13/21 | 0.50 | 1.54 | 0.50 | 3.20% |
KKR June 18 $55 call | KKR210618C00055000 | Sell | 4/28/21 | 3.00 | 1.54 | 2.50 | 6.25% |
USB June 18 $57.50 call | USB210618C00057500 | Sell | 4/28/21 | 2.80 | 3.70 | 2.50 | 5.24% |
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% |