2021 Will Be a Tough Act to Follow
It’s the end of remarkable year. With just two more full market days left, the S&P 500 is up 28% for 2021.
That’s about three times the historical average annual market return, after a terrific year in 2020. These are good times indeed. Apparently, coronavirus was one of the best things that ever happened to stocks.
The market (as measured by the S&P 500) is up 108% from the bear market low in March of 2020 and 42% from the pre-pandemic high in February of 2020. Stocks have returned more than double the historical average from the levels before the pandemic even appeared.
Wall Street found something it likes even better than tax cuts or rate cuts—pestilence.
Of course, the outsized returns are likely about the economy and earnings growing at record levels to make up for lost time while interest rates are near all-time lows. But the party can’t last forever. And here comes 2022.
Inflation isn’t going away and is, in fact, getting worse. The Fed is unwinding its stimulus at a faster pace to make up for lost time fighting inflation. And Omicron is spreading like wildfire. But the market is still busy making new all-time highs, for now.
Recent returns simply can’t last. The market can’t maintain this pace for much longer, even without these looming problems. It’s reasonable to expect a much choppier and sideways year in 2022. That said, it’s not gloom and doom. We are still likely in the early stages of a bull market and recovery that should last years longer. But there has to be some comeuppance for the recent returns.
But while the overall market may be under some pressure next year, there is opportunity in certain sectors. Energy and financial stocks tend to thrive in times of inflation and rising interest rates. And these stocks have been knocked back recently on Omicron virus worries.
But inflation and rising interest rates are likely to endure long after this strain of the virus fades. It’s an opportunity to get into recently cheaper energy and financial stocks ahead of a very promising year for the sectors.
There may be more turbulence in the weeks ahead as the virus runs its course. But portfolio positions Valero Energy (VLO), ONEOK (OKE) and Enterprise Product Partners (EPD) as well as KKR & Co. (KKR) and Visa (V) look increasingly attractive heading into 2022.
Trades past month
November 30th
SOLD QCOM January 21st $185 calls at $9.65
December 17th
KKR December 17th $75 calls at $3.50 – Expired
December 22nd
Purchased Visa Inc. (V) - $217.96
Stock Portfolio Recap
AGNC Investment Corp. (AGNC)
Yield 9.3%
It was ugly for a while last week. AGNC fell below previous support at 15 per share. But once the virus hysteria faded, the mortgage REIT bounced right back. At this point it appears that worries over lockdowns from the new virus strain were overblown. Meanwhile, the other pressures of inflation and a still strong economy should drive rates higher in the months ahead. A steepening yield curve would be good for profits. It’s cheap ahead of a promising year. BUY
Enterprise Product Partners (EPD)
Yield: 8.3%
This midstream energy partnership has underperformed the market in a year where energy is the top performing sector, and it has significantly underperformed the midstream energy index. The likely reason for the underperformance is the fact that Enterprise moves a lot of oil, and the market sees that as a dying business over time. But the stock is still cheap, and the high distribution is very safe. The next time EPD has a spike higher we will look to sell covered calls, and perhaps in-the-money ones to ensure a double-digit income at least. BUY
FS KKR Corp. (FSK)
Yield: 12.0
This BDC has trended lower since the middle of October. It fell steeply during the virus panic last week but has since recovered nicely. It is still knocking around near the lower point of the recent range. Earnings were solid and FSK continues to benefit from the current environment. Strong economic growth is good for small companies. It only needs to get back up near the higher point of the recent range and there should be a good call writing opportunity. A solid call premium combined with that massive yield should provide a great income. BUY
KKR & Co., Inc. (KKR)
Yield: 0.8%
After an amazing October, KKR has really been riding the fortunes of cyclical stocks. As it was consolidating after the surge it got hit with virus and growth concerns. But as those concerns are fading, KKR has been red hot. It’s up about 10% in the last week. As I mentioned above, recent virus concerns are making cyclical stocks cheap ahead of a promising year. And KKR is one of the best. HOLD
One Liberty Properties, Inc. (OLP)
Yield 5.2%
This industrial REIT has broken out into a higher range since the strong earnings report.
Although it has bounced around with the virus worries, it still held the higher range and has recently recovered back near the all-time high. It’s a very good player in a desirable space and there is more demand than supply of industrial properties. We sold the calls at the very high after a nice move. OLP should still stay in this new higher range, but it might take a while before it breaks out even higher. HOLD
ONEOK, Inc. (OKE)
Yield 6.3%
This terrific midstream energy stock had been bleeding for two months but has bounced back strongly in the last week. As virus concerns have subsided, investors seem to be realizing that energy stocks are cheaper and well positioned ahead of a promising year as they are likely to thrive amidst inflation and still strong economic growth. This is one of the best midstream energy companies and it’s still priced below the pre-pandemic high despite higher earnings and stronger economic growth. HOLD
Qualcomm Corp. (QCOM)
Yield 1.5%
It’s hard to say what this stock will do in the near term. QCOM has certainly leveled off since the 40% spike in a month. We sold the calls with a strike price in this new higher range. The timing looks good in that sense. Of course, the stock has faced a lot of external headwinds and is hanging tough not far from the recent high. It hasn’t really pulled back so much as it has just stopped going higher. It is still reasonably priced and I like the prospects for the stock in the New Year. HOLD
U.S. Bancorp (USB)
Yield 3.3%
The yield curve has been going the wrong way, and so has USB. Although most elements of the bank’s business are booming, the most important one, net interest income, has been weaker. But, as I mentioned above, the pressures of inflation and a strong economy combined with the Fed tapering are likely to put upward pressure on rates next year. That missing piece of the puzzle should drive the stock higher. HOLD
Valero Energy Corp. (VLO)
Yield 5.6%
I know. Energy stocks have had a rough time lately, and this refiner stock is a high leverage play on the sector. That’s why it’s down from the 52-week high, and still way below the all-time high. But I believe VLO has another hot run left. Demand for gasoline, diesel and heating oil is strong and will likely remain so for a while. Meanwhile, prices are high with no end in sight. Next year should be great for the refining business. VLO is also a great inflation hedge. BUY
Visa Inc. (V)
Yield 0.7%
V has been hot stuff since hitting recent lows last month, although it has been volatile with the overall market this past week. The future is setting up very well for Visa. The global economy should bounce back next year. Travel will return. And that will be icing on the cake because U.S. business is already booming. We’ll make up for the low yield by selling a high-priced call when the time is right. BUY
Xcel Energy Inc. (XEL)
Yield 2.8%
Despite a dip last week, this alternative energy utility is still on an uptrend. It had been up 10% in December. The normally strong performing utility has had a lousy year. But things are changing. Utilities have been getting stronger lately. Plus, alternative energy stocks have floundered this year despite huge growth in the sector as investors focused on the revitalized conventional energy sector. But things change and XEL is still a great way for conservative investors to play the growth in alternative energy. BUY
Existing Call Trades
Sell OLP February 18th $35 calls at $1.50 or better
This call is looking good. We sold high priced calls at a strike price near the high after the stock had a strong surge. It has since leveled off and bounced around. OLP is likely to stay in this current range for a while before it breaks out to a new level. The calls combined with the strong yield make OLP a great income producer.
Sell QCOM January 21st $185 calls at $9.65 or better
This stock is still looking strong, as noted above. The calls were sold at a strike price near the recent high after the surge, and the stock has been leveling off. I don’t know if the stock is done appreciating for a while or if it will move higher again from here in the next month. But we are set up for a strong income and possibly a fabulous total return if shares are called at expiration.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Price on 12/28/21 | Buy at or Under Price | Yield | Total Return |
| AGNC Investment Corp. | AGNC | 1/13/2021 | 15.52 | 15.47 | 17.00 | 9.31% | 7.95% |
| Enterprise Product Partners | EPD | 3/17/2021 | 23.21 | 21.58 | 25.00 | 8.34% | -1.15% |
| U.S. Bancorp | USB | 3/24/21 | 53.47 | 56.74 | 57.00 | 3.27% | 8.53% |
| Qualcomm Inc. | QCOM | 5/5/21 | 134.65 | 186.33 | 140.00 | 1.46% | 40.27% |
| ONEOK, Inc. | OKE | 5/26/21 | 52.51 | 59.41 | 60.00 | 6.45% | 16.87% |
| One Liberty Properties, inc. | OLP | 7/28/21 | 30.37 | 34.72 | 33.00 | 5.27% | 17.50% |
| KKR & Co., Inc. | KKR | 8/25/21 | 64.52 | 77.25 | 70.00 | 0.77% | 19.95% |
| Xcel Energy Inc. | XEL | 10/12/21 | 63.00 | 66.82 | 67.00 | 2.75% | 6.80% |
| FS KKR Capital Corp. | FSK | 10/27/21 | 22.01 | 20.76 | 24.00 | 12.04% | -2.77% |
| Valero Energy Corp. | VLO | 11/17/21 | 73.45 | 73.13 | 85.00 | 5.46% | 0.89% |
| Visa Inc. | V | 12/22/21 | 217.96 | 217.63 | 225.00 | 0.69% | -0.15% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Price on 12/28/21 | Sell To Price or Better | Total Return |
| OLP Feb 18 $35 call | OLP220218C00035000 | Sell | 11/19/21 | 1.50 | 1.15 | 1.50 | 4.94% |
| QCOM Jan 21 185 call | QCOM220121C00185000 | Sell | 11/30/21 | 9.65 | 6.75 | 9.65 | 7.17% |
| 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% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | 50.63 | 10/15/21 | 55.00 | 11.65% |
| 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% | |
| BIP Oct 15 $55 call | in-the-money | 9./01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24.2021 | $2.30 | 11/19.2021 | $2.30 | 4.30% | |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |