Waiting on the Virus
Here we are in that post-Labor Day market I warned about.
The main thing to watch for, as things currently stand, is the delta variant. Over the summer, the strong economy prevailed over concerns about the virus. And the market drifted higher. We’ll see if the scales get tipped the other way in this historically tough month for the market.
The market has been directionless recently. Investors have not yet decided on a narrative for the fall. It could be that the virus spread will be seen as significantly curtailing the recovery that the market has already largely priced in. In that case, the market could sell down.
On the other hand, the virus spread could be seen as very temporary and likely to be gone in the months ahead. Stocks, mainly cyclicals, that have been held back by virus concerns could then rally strongly. We’ll see what happens. But the market can’t seem to decide right now.
Of course, the situation probably won’t be that black or white. There is also a bad-news -is-good-news dynamic playing out under the surface. The recent weak jobs report reflected badly on the economy and the consumer. But the silver lining is that the bad news might prompt the Fed to maintain its bond buying stimulus for longer. And that’s good for the market.
It’s a good time to write calls if you can find them. A stock near the high ahead of a very uncertain environment could be a good income generator with a low chance of sacrificing capital appreciation. But the rudderless market makes for very low premiums, as fewer investors are willing to speculate on stock prices going higher.
Despite the tough environment, we found good calls to write last week on BIP and USB. The BIP call worked out above the target price as the stock moved higher. But the USB didn’t go through at the targeted price. We will leave that target in place for now in case the stock moves higher over the next week.
Trades this month
August 11th
Sell NEE September 17th $80 calls at $3.50 or better
August 20th
AGNC August 20th $17 calls at $0.50 - Expired
OKE August 20th $57.50 calls at $1.65 – Expired
August 25th
Purchase KKR & Co., Inc. (KKR) $64.31
September 1st
Sold BIP October 15th $55 calls at $2.00
September 8th
Sell USB October 15th $57.50 calls at $1.70 or better - Pending
Stock Portfolio Recap
AGNC Investment Corp. (AGNC) Yield 8.9%
I like the way this mortgage REIT is set up right now. The stock got knocked back over the summer because of the flattening yield curve, as the 10-year Treasury rate has fallen. But the current level of the 10-year yield is silly and doesn’t reflect the booming economy or persistent inflation. In fact, it’s still well below the pre-pandemic level. AGNC doesn’t have much downside in the strong economy and the dividend is safe. There’s a great chance that interest rates rise and lift the stock price over the next several months. BUY
Brookfield Infrastructure Partners (BIP) Yield 3.6%
Very slowly, this infrastructure partnership just made a new all-time high. But it isn’t really running away. In fact, it’s up just slightly less than the S&P 500 YTD. The fundamental prospects were good as transportation assets rebound in the recovery and new projects come online. But the Inter Pipeline merger should propel earnings even higher. That said, BIP has shown a clear pattern of pulling back after making new highs. That combined with the fact that we are in a dicey post-Labor Day market is why we wrote an in-the-money calls on the stock last week. HOLD
Enterprise Product Partners (EPD) Yield 7.9%
This midstream energy partnership really shined after the vaccine announcement last November. It went from being a completely unloved stock to a superstar. But since the middle of June, it has returned to its old ways. At first it was just a necessary consolidation after a big surge higher. Then the delta variant made investors sour on energy once again.
But despite those external acrobatics, the company continues to grow profits in the recovery while the stock price is still well below pre-pandemic levels. It’s dirt cheap. The dividend is safe. And business is booming. That should win eventually. BUY
KKR & Co., Inc. (KKR) Yield 1.0%
This alternative asset wealth manager stock has pulled back 7.5% from the high of early August. Yet, the uptrend since the bear market lows of last year is still intact. It’s taking a much-deserved breather right now. That makes this a good entry point for the stock because prospects are still excellent. Stock performance has blown away the competition over the last several years and recent results and new assets under management indicate that the superior performance should continue. BUY
NextEra Energy Inc. (NEE) Yield 1.8%
NEE has rallied recently on the strength of it being a safe alternative in a pricey market where cyclical stocks have been under pressure. But it’s so much more than that. At some point, the currently neglected but super high growth clean energy subsector will come back into vogue. And NEE will again enjoy the benefits of a being a conservative way to play that growth. HOLD
One Liberty Properties, Inc. (OLP) Yield 5.8%
Industrial REITs are hot stuff right now. And OLP is a good one. There is massive demand for industrial properties and limited supply. The dynamic should last awhile and propel this stock higher. It also helps that the economy is booming. OLP has been trending relentlessly higher since June. And I expect the trend to continue. BUY
ONEOK, Inc. (OKE) Yield 7.1%
This midstream energy company is in a similar boat as EPD. It’s out of favor and floundering despite the fact that business is booming, it sells a cheap valuation, and the dividend is rock solid. I’m not sure when the stock will get moving. But it’s too good of a value and pays to much of a dividend to wallow for that long. Plus, when it does get moving it tends to move fast. BUY
Qualcomm Corp. (QCOM) Yield 1.9% This 5G smartphone semiconductor stock is cheap at just 18 times earnings while business is booming. In the first nine months of this year, revenue is up 60% and earnings are up 129% over the same period last year. I’m not sure why the stock is performing poorly. Future quarters look great as well. Hopefully, 5G will become a more important story in the market as things normalize after the pandemic and QCOM will get a move on. BUY
U.S. Bancorp (USB) Yield 3.3%
This is another great play on the likely rising 10-year rate. In this strong economy, business is great in every area except net interest income. If those margins improve, the bank will be firing on all cylinders. But that could take months to come to fruition. The call we attempted to write never reached the targeted price as USB has pulled back over the last week. But we will still leave the target call price at $1.70 in case the stock moves up again over the next week. HOLD
Existing call trades
Sell NEE September 17th $80 calls at $3.50 or better
The stock has moved higher over the past month as cyclical stocks have floundered. The calls are currently selling well above the target price at $6.60. The stock price is just below 87 per share with just a little over a week to go before options expiration. It looks like it will certainly be called at this point. But we’ll lock in great return in a relatively short amount of time.
Sell BIP October 15th $55 calls at $2.00 or better
We didn’t get a chance to sell the USB calls at the targeted price after you received the update. But these BIP calls sold above 2 per call after the update was issued. The calls are above that price now at 2.73 per call and are worth selling here if you have not already done so.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 9/7/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 15.98 | 17.00 | 9.01% | 10.72% |
| Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 57.09 | 53.00 | 3.57% | 14.16% |
| NextEra Energy, inc. | NEE | 2/24/21 | 73.76 | 85.03 | 80.00 | 1.81% | 15.55% |
| Enterprise Product Partners | EPD | 3/17/21 | 23.21 | 22.62 | 25.00 | 7.89% | 0.02% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 55.83 | 55.00 | 3.30% | 8.35% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 143.75 | 140.00 | 1.89% | 8.94% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 52.47 | 60.00 | 7.13% | 2.83% |
| One Liberty Properties, inc. | OLP | 7/28/21 | 30.37 | 31.87 | 33.00 | 5.65% | 3.06% |
| KKR & Co., Inc. | KKR | 8/25/21 | 64.52 | 62.77 | 68.00 | 0.92% | -0.33% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 9/7/21 | Sell To Price or Better | Total Return |
| NEE Sep 17 $80 call | NEE210820C00080000 | Sell | 8/11/21 | 3.50 | 5.40 | 3.50 | 4.75% |
| BIP Oct 15 $55 call | BIP211015C00055000 | Sell | 9/1/21 | 2.00 | 2.73 | 1.80 | 3.95% |
| USB Oct 15 $57.50 call | USB211015C00057500 | Sell pending | 1.01 | 1.70 | 3.18% | ||
| 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% |
| Digital Realty Trust | DLR | Called | 1/27/21 | 149.17 | 7/16/21 | 155.00 | 5.50% |
| 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% | |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | 8.00 | 7/16/21 | 8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 4.75% | |