The Tortoises Prevail
The overall market has topped out in the last month. But many of the slower-moving and more value-oriented stocks didn’t get the memo. Several portfolio positions are forging to new highs while the market flounders.
Technology stocks are no longer flying. The cyclical rally has petered out. There isn’t enough to drive the market higher. But many of the less headline-grabbing stocks have continued their slow uptrend, uninterrupted by the sideways direction of the indexes.
Portfolio positions including AGNC Investment Corp. (AGNC), Brookfield Infrastructure Partners (BIP), Digital Realty (DLR), Enterprise Product Partners (EPD) and ONEOK (OKE) have all made new 52-week highs over the past week. Just about all of these stocks are dividend payers that had lagged the overall market through most of the recovery. It can’t be a coincidence that they are all making new highs.
The sideways market is forcing the investment public to become more level-headed (despite their objections). As the market runs out of high-flying sectors, money gravitates to where the value and momentum is. The time has come for these less charismatic players to shine. The tortoise in marching ahead while the hare is running all over the place.
But this market creates some tough choices for the portfolio. It’s generally a good time to write calls when stocks are at new highs and you can lock in the recent appreciation in the form of a higher income. But the sideways direction of the overall market is holding back call premiums.
I’d love to use the current market to ring the register and lock in more income. But there are two things stopping me right now. The generally unimpressive level of call prices, and the fact that many of the positions are likely to continue trending higher in the weeks ahead. Why limit the upside for a crummy call premium?
At this point, I’m holding off on writing calls and letting the current portfolio positions ride. Generating an optimal income from a portfolio often requires patience. This is one of those time when I believe patience will pay off.
Of course, things change fast. Don’t forget to keep an eye out for trade alerts in your email in case a good opportunity presents itself between weekly updates. In the meantime, several portfolio positions are still in the BUY range and well worth acquiring here if you don’t own them already.
Trades this month
May 4
Buy Qualcomm stock (QCOM) - $134.12
May 26
Buy ONEOK stock (OKE) - $52.51
Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 7.7%
This high-yielding and monthly-paying mortgage REIT has been trending slowly higher for more than a year with no signs of stopping. Despite that performance, AGNC is still below the pre-pandemic high and very far below the all-time high. It continues to be an ideal environment for this type of security with a booming economy, likely rising rates and strong investor appetite for yield. HOLD
Brookfield Infrastructure Partners (BIP) Yield 3.7%
This is another stock that has been slowly tending higher. Quietly, it made a new all-time high this week. It is benefitting from a shift to value in the market. But the shift is justified and overdue. This infrastructure partnership combines resilient and defensive earnings with solid earnings growth as new projects come online, transportation assets rebound in the recovery, and the merger with Inter Pipeline is likely to go through. The merger could be a game-changer in terms of earnings growth. BUY
Digital Realty Trust, Inc. (DLR) Yield 2.9%
This data center REIT moves to its own drummer. It was a superstar performer during and right after the pandemic bear market. But then trended lower for the about six months. It has come alive again since the beginning of March and just made a new all-time high. The stock may continue to forge higher because it has growing and reliable earnings. But it’s at a level where it’s advantageous to write a call and lock in a high income. HOLD
Enterprise Product Partners (EPD) Yield 7.3%
This midstream energy partnership is looking very good here. It’s been trending higher since the vaccine announcement in early November. But it moves so slowly it’s hard to notice. While no one was paying attention, EPD has returned more than 30% YTD. It’s also making a series of new post-pandemic highs over the past week. Yet, EPD is still a long way from the pre-pandemic high and light years from the all-time high. It sells at a great valuation with a high and safe yield and now it has momentum too. We could write a call here, but I think the stock price has further to climb first. BUY
KKR & Co. (KKR) Yield 1.0%
After a big run-up from late January until early May, KKR has been stuck in the mud since. That’s OK. It had to consolidate at some point. I still like the stock’s prospects for the rest of this year. It’s a very friendly environment for asset managers as the economy booms. We also may have timed the calls just right. The stock is just pennies above the strike price and expiration is in just 10 days. We may be able to keep the stock and write more calls in the future when KKR will likely trend higher again. 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 6.7%
Much of what I said about fellow midstream energy company EPD is true for OKE. The stock is at a good value and trending higher with a high and safe dividend. There is a good chance that OKE will continue trending higher in the weeks ahead. But OKE is more volatile than EPD, which is a good thing when conditions are favorable. As a result, OKE generates much higher call premiums. We could write an attractive call at current levels. But I want to wait for more price appreciation. BUY
Qualcomm (QCOM) Yield 2.0%
Sure, the technology sector has been floundering. The sector is still below the highs of February after leading the market for so long. Sector foibles have no doubt factored into recent performance. But the company itself is doing great. Earnings were phenomenal as Qualcomm is a huge beneficiary of the 5G rollout, as the company earns royalties in its 5G smartphone chip. The good times should last a while. In the meantime, QCOM sells at just 16 times earnings ahead of 5G becoming a bigger story in the market after the pandemic. QCOM may bounce around for a while longer but it could be a big winner over the rest of the year. 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 18 $17 call at $0.50 or better
The stock just keeps forging higher with no signs of stopping. It is all but certain that shares will be called in 10 days if you wrote the calls, as the current price is 18.78 per share and the call price is 17. That’s OK. We’ll still lock in a terrific income and total return in a short amount of time.
Sell KKR June 18 $55 calls at $3.00 or better
As I mentioned above, this stock may not be called at expiration. It currently sells at just pennies above the strike price with 10 days to go. I’d like to keep the stock because there is a strong chance that it will trend higher in the months ahead and we can write more call. But we will lock in a strong total return in a short time even if shares are called.
Sell USB June 18 $57.50 calls at $2.80 or better
USB stopped moving higher almost a month ago. But it hasn’t had any kind of a significant pullback either. It’s still selling a couple of dollars above the strike price. There’s a chance it could close below 57.50 per share in 10 days. But either way, we’re set up to get a high income and/or total return.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 6/8/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 18.70 | 17.00 | 7.70% | 24.81% |
| Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 55.58 | 53.00 | 3.66% | 11.90% |
| Digital Realty Trust | DLR | 1/27/21 | 149.17 | 160.02 | 155.00 | 2.90% | 8.20% |
| NextEra Energy, inc. | NEE | 2/24/21 | 73.76 | 72.14 | 80.00 | 2.13% | -1.16% |
| Enterprise Product Partners | EPD | 3/17/21 | 23.21 | 24.73 | 25.00 | 7.28% | 8.97% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 60.29 | 55.00 | 2.79% | 13.60% |
| KKR & Co. | KKR | 3/24/21 | 47.98 | 55.30 | 50.00 | 1.05% | 15.55% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 134.60 | 140.00 | 2.03% | 0.17% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 55.81 | 60.00 | 6.70% | 6.23% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Price on 6/8/21 | Recent Price | Buy Under or | Total Return |
| AGNC June 18 $17 call | AGNC210618C0017000 | Sell | 4/13/21 | 0.50 | 1.62 | 0.50 | 3.20% |
| KKR June 18 $55 call | KKR210618C00055000 | Sell | 4/28/21 | 3.00 | 0.90 | 2.50 | 6.25% |
| USB June 18 $57.50 call | USB210618C00057500 | Sell | 4/28/21 | 2.80 | 2.93 | 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% | |