Different Opportunities in an Uneven Market
So far, October looks better than September for the market. After falling 4.8% in September, the worst month since the pandemic recovery began, the S&P 500 is up slightly for October.
But we might not be out of the woods yet. Much will depend on earnings this quarter. Earnings have been spectacular throughout the pandemic recovery and have propelled the market higher. But things are less certain this quarter.
There are continuing supply chain issues and inflation. It remains to be seen if these issues will spoil the party and create a disappointing earnings season, or if overall earnings will manage to impress anyway. We’ll see.
But despite uncertain prospects for the overall market, certain sectors of the market are on fire.
Energy is killing it. Oil prices have risen to the highest level since 2014 amidst strong demand and supply constraints. Portfolio positions Enterprise Product Partners (EPD) and ONEOK (OKE) are finally busting a move. Also, interest rates have spiked of late. U.S. Bancorp (USB) and AGNC Investment Corp. (AGNC) benefit from higher interest rates and higher spreads.
Those four stocks have strong momentum that could continue in the weeks and months ahead. It’s a raging bull market in half of the portfolio. There will be great covered call writing opportunities in the near future after these stocks ride a little higher.
At the same time, other sectors are getting neglected. Chipmaker Qualcomm (QCOM) has taken the brunt of recent circumstances and is now down 25% from the February high. While some stocks are thriving, QCOM is a bear market buying opportunity in this crazy market.
I also highlight another neglected stock selling at a dirt-cheap price in this issue.
Trades this month
September 17
NEE September 17 $80 calls at $3.50 – Expired
NextEra Energy, Inc. (NEE) stock – Called $80.00
September 22
Sell USB October 15 $57.50 calls at $1.70 or better – Remove
September 24
Sell USB November 19 calls at $2.30 or better
October 13
Buy Xcel Energy Inc. (XEL)
Trade Alert
Buy Xcel Energy (XEL)
Utility stocks fill a great niche in any investment portfolio, especially when stock prices get a little frothy. The sector is the most defensive in the market as earnings are virtually immune to economic cycles. Stocks also pay high dividends and typically hold up very well in down markets.
Xcel Energy provides all those advantages plus exposure to the fast-growing and highly sought-after alternative energy market.
Xcel is a regulated electric and natural gas utility serving 3.7 million electric customers and 2.1 million natural gas customers in eight states, primarily in the northern and southwestern U.S. It is also one of the largest renewable energy providers in the U.S. with 28% of electricity sales generated from alternative energy sources in 2019.
Alternative energy is what separates XEL from the utility pack and makes it a much better investment. It enables investors to play defense and offense at the same time. You get stable earnings and low volatility along with exposure to one of the most exciting and fast-growing areas of the market.
Results support that bold statement. From 2005 through 2019 earnings grew at a compound annual rate of 6.1%. While that might not sound exciting, it was good enough to deliver average annual total stock returns of better that 14% over the last ten years.
While the longer-term trajectory looks excellent, it’s really the recent market action that prompts the recommendation. The stock has gotten very cheap because of near-term circumstances and market gyrations that are unlikely to last.
XEL had been an up-trending juggernaut until the pandemic. Although it recovered quickly after the bear market, it has lagged ever since. XEL is down over 13% since the vaccine announcement last November and is now near the low point of the up-and-down range over the past year.
The pandemic recovery forgot all about the growth in clean energy, which is by far the fastest growing energy source. As conventional energy got hot as the vaccines opened up the economy, investors forgot about clean energy. Over the past year, XEL has behaved like a regular utility, moving in the opposite direction of cyclical stocks.
But it’s much more than a regular utility.
Things will normalize as the pandemic fades away. Investors will again realize that XEL is a brilliant way for conservative investors to play the growth in clean energy. But even before that, XEL is due to bounce higher even if recent patterns persist.
XEL is dirt-cheap and represents a great buying opportunity for both the long and short terms
Stock Portfolio Recap
AGNC Investment Corp. (AGNC)
Yield 8.9%
This yield-sensitive mortgage REIT might finally be getting a move on. While other yield curve stocks, namely USB, have already made a sizable move higher since the 10-year rate took off, AGNC had been stuck in the mud. The steepening yield curve should eventually drag AGNC’s share price higher with it. And the stock has had several up days in a row. BUY
Brookfield Infrastructure Partners (BIP)
Yield 3.6%
This infrastructure partnership doesn’t move fast but it’s clearly trending the right way. It characteristically pulled back after making a new high in early September. It seems to be slowly climbing back towards that high recently. However, further weakness in the market could delay the recovery over the next couple of weeks. Longer term, infrastructure is an increasingly popular subsector as it remains in the news. Brookfield should also get an earnings growth spurt in the quarters ahead from the recent Inter Pipeline acquisition. HOLD
Enterprise Product Partners (EPD)
Yield 7.7%
Oil price have soared. The energy sector has rallied back to life. EPD tends to be a slow-moving laggard. But even this stodgy midstream energy partnership is starting to get the lead out. After wallowing in oblivion for months, EPD has moved up 12% in just the last three weeks. The stock is still below the pre-pandemic levels and miles below the all-time high. Business is improving and the stock is still a great value with a high and safe distribution. I expect this stock to keep going. BUY
KKR & Co., Inc. (KKR)
Yield 0.9%
The alternative investment asset manager pulled back over 10% from the August high on fears of contagion from the Chinese real estate issues with Evergrande. If the situation escalates to a bigger crisis it would impact some of KKR’s investments. But aside from that, the company is absolutely killing it.
Earnings were spectacular and future growth looks strong. KKR is expected to grow earnings 95.9% in this quarter. The Chinese situation seems to have abated, for now. KKR has moved up about 8% over the last week and appear to be getting back on track. I am raising the rating back to a BUY. BUY
One Liberty Properties, Inc. (OLP)
Yield 5.7%
This diversified industrial REIT is solid. The industrial REIT niche is a good one as demand exceeds current supply of the properties. It’s sort of knocked around and is up just slightly since being added to the portfolio. But it’s a defensive stock with a great yield. As the market normalizes and the recent outsized returns become much harder to get, defensive stocks should be popular again. OLP is also a more cyclical REIT that should get an extra benefit in the strong economy. BUY
ONEOK, Inc. (OKE)
Yield 5.9%
This midstream energy stock is the hare to EPD’s tortoise. It soared 20% in the last three weeks during this energy sector rally and made a brand-new post-pandemic high. OKE is still pretty far below the pre-pandemic high even though earnings are much higher than they were then, and future growth prospects are better. BUY
Qualcomm Corp. (QCOM)
Yield 2.2%
This 5G chipmaker has been a real dog since early February. It’s down about 25% from the high and is at the low point of the range since the floundering began. QCOM is now at the same price it was one year ago. After a big surge a consolidation was probably necessary. But this is silly. The last down leg was likely caused by the slowdown in China and lower Apple (AAPL) smartphone sales because of chip supply issues.
But earnings have been killing it as profits roll in from huge 5G phone royalties. And that should continue for several quarters. Meanwhile, QCOM sells at an astoundingly low valuation for the level of earnings growth it is delivering. It’s worth it to be patient because this stock moves fast and makes up for lost time when the going is good. It’s a great price to buy this stock right now. BUY
U.S. Bancorp (USB)
Yield 3.0%
The rising yield curve is propelling the stock higher. After going nowhere for several months, USB has moved about 12% higher in the last three weeks as the rising 10-year rate got more attention. It just made a new 52-week, post-pandemic, and all-time high. Rising rates should have this regional bank firing on all cylinders. Earnings will be reported in a few days but are unlikely to reflect the recent interest rate spike. BUY
Existing Call Trades
Sell BIP October 15th $55 calls at $2.00 or better
These calls expire Friday at a 55 per share strike price while the stock is currently 56.50. There is a high probability that the stock will close above the strike price and the shares will be called. That’s okay. We milked a high return in a short amount of time. Plus, it doesn’t appear that BIP will run away anytime soon.
Sell USB November 19th $60 calls at $2.30 or better
The stock has really been on fire lately as rising interest rates promise to juice profits. I believe interest rates will continue to trend higher, although the spike could take a break. USB just made a new all-time high. A lot can happen over the next month, especially in an uncertain market.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 10/12/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 01/13/21 | 15.52 | 16.20 | 17.00 | 8.89% | 11.35% |
| Brookfield Infrastructure | BIP | 01/13/21 | 50.63 | 56.04 | 53.00 | 3.65% | 13.85% |
| Enterprise Product Partners | EPD | 3/17/21 | 23.21 | 23.99 | 25.00 | 7.66% | 7.79% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 61.66 | 57.00 | 2.97% | 17.94% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 122.95 | 140.00 | 2.21% | -7.80% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 62.95 | 60.00 | 5.94% | 22.04% |
| One Liberty Properties, inc. | OLP | 7/28/21 | 30.37 | 31.69 | 33.00 | 5.77% | 5.87% |
| KKR & Co., Inc. | KKR | 8/25/21 | 64.52 | 65.29 | 70.00 | 0.94% | 1.19% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 10/12/21 | Sell To Price or Better | Total Return |
| BIP Oct 15 $55 call | BIP211015C00055000 | Sell | 9/1/21 | 2.00 | 1.65 | 2.00 | 3.95% |
| USB Nov 19 $60 call | USB211119C00060000 | Sell | 9/24/21 | 2.30 | 3.03 | 2.30 | 4.30% |
| 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% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | 73.76 | 9/17/21 | 80.00 | 10.00% |
| 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 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |