A Market That Can’t Decide
There’s good news. The S&P 500 has made a new all-time high. The Nasdaq achieved a new high on Monday. That’s the first new high for the tech-heavy index since early February.
But things aren’t great in the market, just okay. Despite the new highs, these indexes are just a whisker above the levels of months ago. Stocks have been moving sideways. Investors still can’t seem to decide the next big move.
It’s a tug-o-war. It’s hard to get negative about the market in a booming economy with low interest rates and a friendly Fed, along with trillions in stimulus. That’s nirvana for stocks. On the other hand, it’s impossible to tell how much of this good news is already priced into stocks after a 90% run from the bottom.
Investors also can’t decide what to make of the post-pandemic market. Looking ahead, what will be hot after things normalize? Investors can’t seem to make up their minds. One day, cyclical stocks are hot and technology is cold. Another day, cyclical stocks are finished and technology rallies. The market can’t decide if inflation is a problem or not. It recently decided that the yield curve will flatten, but that too could change tomorrow.
It appears that stocks will continue to knock around until one of these themes gains lasting traction. And that could take all summer. But income investors still thrive in a sideways market. Dividends continue to roll in and covered call opportunities present themselves periodically.
This newsletter will continue to generate a high income and strong total returns while the overall market flounders. If the market takes off again, the call premiums will get even fatter.
Trades this month
June 15
Sell DLR July 16 $155 calls at $8.00 or better
June 18th
AGNC June 18th $17 call at $0.50 - Expired
KKR June 18 $55 calls at $3.00 - Expired
USB June 18 $57.50 calls at $2.80 - Expired
KKR & Co. stock (KKR) – Called at $55
June 23rd
Sell AGNC August 20th $17 calls at $0.50 or better
Sell OKE August 20th $57.50 calls at $1.65 or better
Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 8.4%
There were two main reasons to buy this mortgage REIT: the booming economy and the steepening yield curve. The steepening yield curve part has come into question and the stock has fallen. But I still like AGNC for two reasons. One is that the strong economy should make the huge dividend quite secure and make the stock at least stable and high yielding from here. And two, the yield curve may indeed still steepen despite the recent consensus thinking. HOLD
Brookfield Infrastructure Partners (BIP) Yield 3.8%
This infrastructure partnership is like the Energizer turtle. It just keeps going and going, but at a pace that’s so slow you can barely notice. It has been trending ever-so-slowly higher for the whole year. That’s okay. It pays a solid dividend with a price that trends higher in an uncertain market. It also has rising earnings as recent acquisitions boost the bottom line. And infrastructure may become a much more popular subsector if Congress passes any kind of infrastructure bill. BUY
Digital Realty Trust, Inc. (DLR) Yield 2.9%
DLR made a new high and then pulled back. The behavior is historically typical for this stock, which has trended distinctly higher on a bouncy line. Nothing has changed at the company. But somehow the market angst over the recent Fed statement hurt this stock in the near term. It may well move right back up to the highs. We’ll see. HOLD
Enterprise Product Partners (EPD) Yield: 7.4%
There has been a recent move away from the cyclical trade, which has hurt energy stocks and EPD by association. Of course, a couple of trading days does not a trend make. So, we’ll have to see. For one thing, cyclical stocks could be back in favor tomorrow. The market hasn’t figured out where it’s going yet. Plus, midstream energy companies are not affected by inflation, only oil and gas volumes, which will surely be strong in a booming economy. EPD is still in an uptrend. And we’ll collect that fat dividend while the market tries to figure out what the next big move will be. BUY
NextEra Energy Inc. (NEE) Yield 2.1%
This former superstar has been floundering for months. But I like the way alternative energy is set up going forward. Amidst the pandemic and boom in technology followed by the cyclical rally, investors forgot about this fast-growing subsector. But, as things normalize after the pandemic, clean energy will be a hot trade again, and this conservative play will be right there. BUY
ONEOK, Inc. (OKE) Yield 6.6%
This midstream energy company, in the form of a regular corporation, is just like EPD, except more volatile. It recovered very quickly from the selloff a couple of weeks ago and is not far from the recent high. Meanwhile. It is still well below the pre-pandemic price with much better earnings that are growing at a solid clip. BUY
Qualcomm (QCOM) Yield 2.0%
Regardless of near-term market gyrations, this chip maker is beautifully positioned ahead of the 5G ware and growing earnings at a huge clip, despite a very reasonable valuation. I believe it’s only a matter of time until QCOM takes off again. That time could be fast approaching. We’ll see. But the stock has been rallying and just got to the highest point since April. BUY
U.S. Bancorp (USB) Yield 2.9%
This best-in-class regional bank stock got knocked back by the recent yield curve trade. But it’s not out by any means. Profitability will surely benefit from higher loan volume in a booming economy. And long-term rates may trend higher going forward as well. HOLD
Existing call trades
Sell DLR July 16th $155 calls at $8.00 or better
There was a small window after the June 9th update was released to get these calls at the targeted price. Then the stock fell, and the calls are now priced well below the target price at $3.70. It is very important to act quickly on covered call recommendation. The prices are volatile and can move quickly.
Sell AGNC August 20th $17 calls at $0.50 or better
It’s hard to say the near-term direction of this high-yielding play on the yield curve. This week the stock is down, and the calls are below target at 0.48. The uncertainty makes it a good bet to lock in four months’ worth of dividends in call premium.
Sell OKE August 20th $57.50 calls at $1.65 or better
The midstream energy company stock was strong last week but weak this week. These calls are also below target at $1.55. But you had several days to get the targeted price or better. I think the stock will move higher in the months ahead, but you never know in this weird market. If it does move higher and shares get called away, we will lock in a strong total return and still have EPD.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 6/29/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 17.03 | 17.00 | 8.37% | 13.93% |
| Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 54.36 | 53.00 | 3.76% | 9.36% |
| Digital Realty Trust | DLR | 1/27/21 | 149.17 | 152.63 | 155.00 | 3.04% | 6.02% |
| Enterprise Product Partners | EPD | 3/17/21 | 23.21 | 23.69 | 25.00 | 7.43% | 5.98% |
| NextEra Energy, inc. | NEE | 2/24/21 | 73.76 | 75.13 | 80.00 | 2.09% | 1.84% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 55.52 | 60.00 | 6.61% | 5.87% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 139.80 | 140.00 | 1.95% | -0.01% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 57.12 | 55.00 | 2.90% | 5.48% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 6/29/21 | Sell To Price or Better | Total Return |
| DLR Jul 16 $155 call | DLR210716C00155000 | Sell | 6/9/21 | 8.00 | 3.70 | 8.00 | 5.36% |
| AGNC Aug 20 $17 call | AGNC210820C00017000 | Sell | 6/23/21 | 0.50 | 0.48 | 0.50 | 3.00% |
| OKE Aug 20 $57.50 call | OKE210820C00057500 | Sell | 6/23/21 | 1.65 | 1.55 | 1.65 | 3.14% |
| 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% |
| KKR & Co. | KKR | Called | 3/24/21 | 47.98 | 6/18/21 | 55.00 | 14.92% |
| 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% | |
| AGNC Jun 18 $17 call | out-of-money | 4/13/21 | $0.50 | 6/18/21 | $0.50 | 3.21% | |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | $3.00 | 6/18/21 | $3.00 | 6.25% | |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | $2.80 | 6/18/21 | $2.80 | 5.24% | |