Please ensure Javascript is enabled for purposes of website accessibility
Income Advisor
Conservative investing. Double-digit income.

January 5, 2022

In two days, the S&P 500 has set two new all-time highs. Last year’s momentum is spilling over so far. But will it last?

Energy and Financials Start the Year Hot
So far, so good. Of course, it’s only the second trading day of the year.

In two days, the S&P 500 has set two new all-time highs. Last year’s momentum is spilling over so far. But will it last?

Stocks still look strong. Sure, the market is high. Yeah, there’s inflation, Fed tightening and the virus. But a still-hot economy with strong corporate earnings in an environment where money has no place else to go but stocks is winning, for now.

The most impressive performance so far is in the energy and financial sectors. It’s not even the end of the second trading day and the energy sector is up about 7% for the year. Financial stocks are up 4%. The expected theme is so far playing out.

In earlier updates, I had mentioned that the huge market returns of the last 21 months were unlikely to continue, and 2022 should be a more sideways and choppy market. But selective investors are likely to gravitate toward stocks that are more reasonably valued and actually benefit from inflation and rising rates.

We’ll see how long the current momentum lasts. But 2022 is playing out as expected in the first couple of days. While I love the big move in energy and financial stocks, it’s not clear how the market will behave in the near term. A market pullback or more bad virus news could reverse the recent trends in the weeks ahead.

Let’s strike while the iron is hot. In this update, I highlight a covered call opportunity in midstream energy company ONEOK (OKE). It’s had a nice move higher recently and it’s a good time to seize the moment and ring the register for more income with a high-priced call premium.

Trades past month
December 17th
KKR December 17th $75 calls at $3.50 – Expired

December 22nd
Purchased Visa Inc. (V) - $217.96

January 4th
Sell OKE February 18th $60 calls at $2.75 or better

Trade Alert
Sell OKE February 18th $60 calls at $2.75 or better
Expiration date: February 18th
Strike price: $60
Call price: $2.75

ONEOK Inc. (OKE)
The stock has been moving higher lately and may have more to go. But I’m not sure I trust this market in the near term. The stock got a boost that may or may not continue over the next six weeks until expiration. A market dip or bad virus news could set it back. Let’s cash in on the recent strength and ring the register for more income and a strike price well above the purchase price. If energy does stay hot, we still have fellow midstream company EPD as well as refiner VLO.

It’s well worth noting that the numbers below do not include the previous two calls written on this same position earlier for a total of $5.75. If you sold those calls, you can add another 11% to both the income and total return numbers below.

Here are the three scenarios.

  1. The stock closes above the $60 strike price at expiration

Call premium: $2.75
Dividends: $2.80 (8-15, 11-15, 2-15)
Appreciation: $7.49 ($60.00 strike price minus $52.51 purchase price)

Total: $13.04 (total return will be 24.8% in nine months)

  1. The stock price closes below but near our $60 strike price.

Call premium: $2.75
Dividends: $2.80

Total: $5.55 (total income of 10.6% in nine months)

  1. The stock price declines.

The decline will be offset by the $5.55 in income. Of course, the stock price may still be above the original $52.51 per share purchase price.

Stock Portfolio Recap
AGNC Investment Corp. (AGNC)
Yield 9.6%
This mortgage REIT has stabilized around the mid-15’s per share. Things are solid operationally and that stratospheric dividend is safe. It should benefit as longer-term interest rates are likely pressured higher by Fed tightening, inflation, and the still-solid economy. Rates have trended the other way over the past several months, but I expect that situation to reverse, especially when the recent virus hysteria fades. BUY

Enterprise Product Partners (EPD)
Yield 7.9%
This midstream energy partnership has been acting much better lately. It had been a serial underperformer since the fall, but it has moved up about 10% in the past few weeks and has outperformed its peers. A strong performance is overdue. Business is good, the stock is grossly undervalued, and the high distribution is rock solid. Hopefully, it keeps moving. BUY

FS KKR Corp. (FSK)
Yield 11.8%
This BDC has also come alive in the last two weeks, It’s up a little under 8% for that timeframe. But that’s a decent move for this high yielder. It’s on the cusp of breaking the recent downtrend on a technical basis. It got neglected as investors started value hunting in a high-priced market. Earnings were solid and the 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. BUY

KKR & Co., Inc. (KKR)
Yield 0.8%
After leveling off in the fall, KKR has been riding the virus news along with the financial sector. It sold off in the brief market panic and has recovered nicely as growth fears over lockdowns from Omicron have faded. It is poised for strong performance in the quarters ahead. Business is booming and the environment is shaping up well for financial stocks in general, with inflation and likely rising rates. It’s less clear how the stock will behave in the near term. HOLD

One Liberty Properties, Inc. (OLP)
Yield 5.1%
This industrial REIT has performed better than expected. It broke out into a higher range after a strong earnings report. It looked like it was going to wallow in that new range for a while before moving higher. But OLP has broken out to a new high over the past week. The stock is still only pennies above the strike price for the calls written. We’ll see what happens in the next six weeks. HOLD

ONEOK, Inc. (OKE)
Yield 6.2%
This terrific midstream energy stock has also bounced back as virus concerns have subsided. Prospects look good for this year as business is strong and the stock is still undervalued. It has been a solid performer so far in the portfolio and the yield is terrific. Also, we sold two calls on the position for a total of 5.75 in premiums. That’s about 11% of income in addition to the dividend. In the near term, the stock could go either way. The recent move higher is good opportunity to lock in even more income with another call. 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%
This regional bank stock has been bouncing around since May between about 55 and 62 per share. We have already sold two calls at the higher point of the range. It has been moving higher lately but is still a couple of dollars below the high point of the range. There is a good chance it can carry this momentum back above 60. We’ll wait patiently to sell another call if it gets there. HOLD

Valero Energy Corp. (VLO)
Yield 5.6%
It looks like this high-leverage play in the energy sector has come alive again. It’s up almost 20% since the beginning of December. It might be on its way back to the recent high of about 85 per share (currently 79.24). But it should certainly break 80 per share even if it falls short. The call premiums are still not that well priced and there is a good chance that the recent move has more to go. Therefore, we will wait to sell a call on the position. BUY

Visa Inc. (V)
Yield 0.7%
V has been hot stuff since hitting recent lows last month. 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. V is up over 16% since hitting a recent low of about 190 in early December. It still seems to have momentum and it should move higher in the weeks ahead. 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%
This alternative energy utility is definitely moving higher. Although it is still below the recent high after pulling back, the uptrend since late September is still solid. This is a great alternative energy utility that has been popular with investors prior to the cyclical recovery after the vaccines, as conventional energy got hot. I’m looking for at least above 70 per share before selling a call (currently 68). BUY

Existing Call Trades
Sell OLP February 18th $35 calls at $1.50 or better
As I mentioned above, the stock has been strong. It has broken out to a new high and is currently above the strike price at 35.70 per share. That said, expiration is still six weeks away and the stock is on shaky ground at this level in the near term. The calls are currently selling above the target price and are still worth selling if you have not done so already.

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 over the next few weeks. 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 RecommendationsTicker SymbolEntry DateEntry PricePrice on
1/3/22
Buy at or
Under Price
YieldTotal Return
AGNC Investment Corp.AGNC1/13/202115.5215.4517.009.57%8.66%
Enterprise Product PartnersEPD3/17/202123.2122.6425.008.20%3.71%
U.S. BancorpUSB3/24/2153.4757.2757.003.28%10.44%
Qualcomm Inc.QCOM5/5/21134.65186.21140.001.49%40.18%
ONEOK, Inc.OKE5/26/2152.5159.9960.006.36%18.01%
One Liberty Properties, inc.OLP7/28/2130.3735.3533.005.10%19.64%
KKR & Co., Inc.KKR8/25/2164.5273.5270.000.78%14.16%
Xcel Energy Inc.XEL10/12/2163.0067.9467.002.70%8.59%
FS KKR Capital Corp.FSK10/27/2122.0121.1624.0011.84%-0.89%
Valero Energy Corp.VLO11/17/2173.4577.1485.005.22%6.43%
Visa Inc.V12/22/21217.96221.43225.000.69%1.59%
EXISTING CALL TRADES
Open RecommendationsTicker SymbolIntial
Action
Entry DateEntry
Price
Price on
1/3/22
Sell To Price
or Better
Total Return
OLP Feb 18 $35 callOLP220218C00035000Sell11/19/211.501.751.504.94%
QCOM Jan 21 185 callQCOM220121C00185000Sell11/30/219.655.349.657.17%
OKE Feb 18 $60 callOKE220218C00060000Sell2.752.755.24%
SOLD STOCKS
SecurityTicker SymbolActionEntry DateEntry
Price
Sale DateSale PriceTotal Return
Innovative Industrial Props.IIPRCalled6/2/2087.829/18/20100.0015.08%
QualcommQCOMCalled6/24/2089.149/18/2095.007.30%
U.S. BancorpUSBCalled7/22/2036.269/18/2038.003.42%
Brookfield Infras. Ptnrs.BIPCalled6/24/2041.9210/16/2045.008.49%
Starbucks Corp.SBUXCalled8/26/2082.4110/16/2088.006.18%
Visa CorporationVCalled9/22/20200.5611/20/20200.000.00%
AbbVie Inc.ABBVCalled6/2/2091.0412/31/20100.0012.43%
Enterprise Prod. Prtnrs.EPDCalled6/24/2018.141/15/2120.0015.16%
Altria GroupMOCalled6/2/2039.661/15/2140.007.31%
U.S. BancorpUSBCalled11/25/2044.681/15/2145.001.66%
B&G Foods Inc,BGSCalled10/28/2026.792/19/2128.004.42%
Valero Energy Inc.VLOCalled8/26/2053.703/26/2160.0011.73%
Chevron Corp.CVXCalled12/23/2085.694/1/2196.0012.95%
KKR & Co.KKRCalled3/24/2147.986/18/2155.0014.92%
Digital Realty TrustDLRCalled1/27/21149.177/16/21155.005.50%
NextEra Energy, Inc.NEECalled2/24/2173.769/17/2180.0010.00%
Brookfield Infras. Ptnrs.BIPCalled1/13/2150.6310/15/2155.0011.65%
EXPIRED OPTIONS
SecurityIn/out moneySell DateSell PriceExp. Date$ ReturnTotal % Return
IIPR Jul 17 $95 callout-of money6/3/203.007/17/203.003.40%
MO Jul 31 $42 callout-of-money6/17/201.607/31/201.604.03%
ABBV Sep 18 $100 callout-of-money7/15/204.609/18/204.605.05%
IIPR Sep 18 $100 callin-the-money7/22/205.009/18/205.005.69%
QCOM Sep 18 $95 callin-the-money6/24/204.309/18/204.304.82%
USB Sep 18 $37.50 callin-the-money7/22/202.009/18/202.005.52%
BIP Oct 16 $45 callin-the-money9/2/201.9510/16/201.954.65%
SBUX Oct 16 $87.50 callin-the-money10/16/203.3010/16/203.304.00%
V Nov 20 $200 callin-the-money9/22/2010.0011/20/2010.004.99%
ABBV Dec 31 $100 callin-the-money11/18/203.3012/31/203.303.62%
EPD Jan 15 $20 callin-the-money11/23/200.801/15/210.804.41%
MO Jan 15 $40 callin-the-money11/25/201.901/15/211.904.79%
USB Jan 15 $45 callin-the-money11/25/202.001/15/212.004.48%
BGS Feb 19 $27.50 callin-the-money12/11/202.402/19/212.408.96%
VLO Mar 26 $60 callin-the-money2/10/216.503/26/216.5012.10%
CVX Apr 1 $95.50 callin-the-money2/19/214.304/1/214.305.02%
AGNC Jun 18 $17 callout-of-money4/13/210.506/18/210.503.21%
KKR Jun 18 $55 callin-the-money4/28/213.006/18/213.006.25%
USB Jun 16 $57.50 callout-of-money4/28/212.806/18/212.805.24%
DLR Jul 16 $155 callin-the-money6/16/218.007/16/218.005.36%
AGNC Aug 20 $17 callout-of-money6/23/21$0.508/20/21$0.503.00%
OKE Aug 20 $57.50 callout-of-money6/23/21$3.508/20/21$3.506.67%
NEE Sep 17 $80 callin-the-money8/11/21$3.509/17/21$3.504.75%
BIP Oct 15 $55 callin-the-money9./01/2021$2.0010/15/21$2.003.95%
USB Nov 19 $60 callout-of-money9/24.2021$2.3011/19.2021$2.304.30%
OKE Nov 26 $65 callout-of-money10/20/21$2.2511/26/21$2.254.28%
KKR Dec 17 $75 callout-of-money10/26/21$3.5012/17/21$3.505.42%