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Income Advisor
Conservative investing. Double-digit income.

June 8, 2022

Things are looking better. The market stopped going down. Now it’s going sideways. That’s better.

Stocks have moved above the bear market precipice as investors have apparently priced in the fact that inflation will be persistent and the Fed will have to raise rates aggressively this year. That’s a major bummer to factor in. The market appears to have absorbed that shock, at least for now.

Downtrodden Stocks Get New Life
Things are looking better. The market stopped going down. Now it’s going sideways. That’s better.

Stocks have moved above the bear market precipice as investors have apparently priced in the fact that inflation will be persistent and the Fed will have to raise rates aggressively this year. That’s a major bummer to factor in. The market appears to have absorbed that shock, at least for now.

It will likely take more news to move this market significantly higher or lower. It could be that inflation moderates and the Fed doesn’t have to be as aggressive as currently anticipated. That would be a huge positive. Of course, if things deteriorate from here, it would be negative. But any kind of a reliable gage likely won’t come until later in the year.

Even if the market indexes continue to move sideways, there are some opportunities emerging. Stocks that have been dragged down by the negative sentiment are recovering somewhat, including portfolio positions Global Ship Lease (GSL), Innovative Industrial Partners (IIPR) and Qualcomm (QCOM). There could also be some sector rotation toward these oversold stocks that offer compelling values.

We’ll see if the recent trends have some staying power. If so, be on the alert for more stock purchases and covered calls downs the road.

Trades Past Month
May 20th
XEL May 20 $70 calls at $3.00 - Expired
Xcel Energy Inc. (XEL) stock - Called

May 25th
Purchased ONEOK, Inc. (OKE) stock – $65.14

June 1st
Buy Star Bulk Carriers Corp. (SBLK) - $33.30
Sell SBLK July 15th $34 calls at $1.60 or better- Pending

Trade Alert
Buy Star Bulk Carriers Corp. (SBLK)
Star Bulk Carriers is an international shipping company based in Greece. The company owns 158 large ships and specializes in the seaborne transportation of dry bulk goods including iron ore, coal, grains, fertilizers, steel products and others. It is the largest U.S. listed company of its kind.

Shipping companies and stocks had a miserable time last decade. During the 2000s the rise of China led to an unprecedented commodity boom. There weren’t enough ships to keep up with demand and shipping rates soared to the stratosphere. As a result, new ship orders exploded as more companies sought to benefit from the boom.

But by the time all those additional ships hit the market, the boom was over. China’s economy slowed and all the additional shipping capacity caused a collapse in shipping rates and shipping company profits. But things have turned around.

The shipping supply/demand dynamic is back in balance and demand for transporting dry bulk is strong. The Baltic Exchange Dry Index, which tracks dry bulk shipping rates, is currently around 2,500. The rate has soared to over 5,000 last fall amidst the port congestion and supply chain issues. It has come down but remains about double the level of the last ten years. And there are good reasons to believe those rates will remain elevated.

Industry dynamics and new environmental standards are scrapping older ships and new orders are barely keeping up. In fact, management at Star Bulk calls the current environment the best supply/demand dynamic is decades. The new ship orderbook is at 25-year lows and fleet growth is expected to decline significantly through 2023. Meanwhile, demand for dry bulk is expected to remain strong and growing.

There are also things to like about Star Bulk in particular. The biggest thing is that the company has the lowest cost structure of any of its peers. It’s been in business a long time, has size efficiencies, and the company got lean and mean last decade. It’s also well above its peers in environmental compliance with the average ship only ten years old and 94% of the fleet fitted with scrubbers, devices that clean emissions.

Profits are soaring with the high demand and higher rates. Revenue has more than doubled from a year ago, and earnings growth is through the stratosphere. The stock has returned over 50% YTD and about 90% over the last year. But it’s still cheap. SBLK sells at a microscopic price/earning ratio of just four times earnings. Although SBLK is still near the 52-week high, investors had not really bought into it yet. There’s trepidation about global growth and a left-over sour attitude about stocks in the industry after last decade.

A Great Income Generator
The dividend is massive. The next dividend, which trades ex dividend on June 2nd, is $1.65 per share. With a current share price about 33 per share, it translates to a mind-blowing 20% yield. The company has a dividend policy where it pays out cash flow in excess of a minimum level per ship. As profits soar, so does the dividend.

It’s a great stock with strong fundamentals that trades at a dirt-cheap valuation that has been neglected by the down market of late. It also has terrific call premiums.

Sell SBLK July 15th $34 calls at $1.60 or better
Expiration date: July 15th
Strike price: $34
Call price: $1.60

Star Bulk Carriers Corp. (SBLK)
This is a buy-write strategy where the stock is purchased, and a call is sold simultaneously. It offers a unique opportunity for a sizable income right now. Let’s seize the opportunity while it still exists in this crazy market. We can lock in a great income and possibly an even higher total return on an undervalued stock.

Here are the three scenarios.

1.) The stock closes above the $34 strike price but near it at expiration
Call premium: $1.60
Dividends: $1.65
Appreciation: $1.00 ($34.00 strike price minus $33.00 current price)
Total: $4.25 (total return will be 12.9% in 6 weeks)

2.) The stock price closes below but near our $34 strike price.
Call premium: $1.60
Dividend: $1.65
Total: $3.25 (total income of 9.8% in 6 weeks)

3.) The stock price declines.
There will be $3.25 in income to offset the decline.
Stock Portfolio Recap
Global Ship Lease, Inc. (GSL)
Yield: 6.5%
The container shipping company stock had been pulled down by the market since April. Everything international and cyclical took a hit. But GSL has staying power. Profits will rise because Global already locked in much higher rates for long-term contracts than have existed for many years and greatly expanded their fleet. Also, container shipping demand and rates should stay buoyant even as the global economy slows. The stock is already moving higher as the market has stabilized. BUY

Innovative Industrial Properties, Inc. (IIPR)
Yield: 5.2%
This marijuana farm REIT has also trended higher as the market rebounded from the lows. The price was artificially depressed by the downward gravity of the overall market and has rebounded while the market came off the lows. Innovative grew the last dividend 17%, and it has grown 63% over the past three years with a still-low payout ratio for a REIT. It could fall again if the market selling relapses, but the stock can move higher fast. It should trade at a much higher price later this year. BUY

Yield: 5.6%
Energy remains hot as oil prices soared to $120 a barrel with still more pressure to the upside. OKE had been a relative underperformer because it was such an overperformer last year and earnings aren’t sharply rising because they never went down much during the pandemic. But the midstream energy stock has been on the move again recently. Investors are realizing that it is still a reasonably valued energy stock with high and safe dividend. It has both defense and momentum going for it and I expect OKE to trend higher in the months ahead. BUY

One Liberty Properties, Inc. (OLP)
Yield: 6.7%
REITs had been in the crosshairs of the recent market tumult. As a cyclical REIT that had a stellar year in 2021, OLP took a big hit. But it too has been trending higher over the past couple of weeks, albeit slowly. The operational performance at One Liberty remains strong. We’ll see if it continues to move higher and investors realize the value. BUY

Star Bulk Carriers Corp. (SBLK)
Yield: 20.83%
This dry bulk shipping company stock and newest portfolio addition is a little lower in price in the last week, but for good reason. SBLK is paying a huge $1.65 dividend and went ex-dividend on June 2nd. All things being equal a stock will go down by roughly the amount of the dividend in the near term. But the price should recover quickly as the company continues to operate in a very profitable dry bulk shipping environment. BUY

Qualcomm Corp. (QCOM)
Yield: 2.1%
This stock is cheap. The company is killing it not only with massive 5G smartphone royalties, but also on future high growth money makers like auto chips and the Internet of Things (IOT). It didn’t deserve to be dragged down this much. Analysts were slobbering all over this stock just a few months ago and nothing has really changed at the company. In the absence of a recession, QCOM should be a lot higher six months from now. HOLD

Visa Inc. (V)
Yield: 0.7%
V has been knocked around because of economic growth concerns. It has spent much of this year under the 200 per share level, although it has recovered well above that range recently. But the company itself is killing it. The tremendous earnings boost it gets globally from the removal of covid restrictions easily outweighs slower global growth or geopolitical uncertainty. Visa’s earnings blew away expectations with YOY revenue growth of 25% and 30% earnings growth. This stock is poised to move higher if the market selling pressure continues to abate. HOLD
Existing Covered Call Trades
Sell SBLK July 15th $34 calls at $1.60 or better - Pending
The targeted call price was not achieved since the stock and the call were recommended. As mentioned above, the stock moved lower after the ex-dividend date and has not had enough time to recover. That’s okay. We’ll leave the order and the target price as it stands and see if it goes off over the next week. If not, we’ll recalibrate with a different expiration and price. We’ll eventually get a big fat call premium to go with that big fat dividend.

Open RecommendationsTicker SymbolEntry DateEntry PriceRecent PriceBuy at or Under PriceYieldTotal Return
Qualcomm Inc.QCOM5/5/21$134.65$142.00$140.002.12%7.82%
One Liberty PropertiesOLP7/28/21$30.37$27.43$33.006.68%-5.77%
Visa Inc.V12/22/21$217.96$214.50$225.000.70%-1.23%
Global Ship Lease, Inc.GSL2/23/22$24.96$23.48$28.006.54%-4.37%
Innovative Industrial Props.IIPR3/23/22$196.31$136.66$210.005.20%-31.63%
ONEOK, Inc.OKE5/25/22$65.14$69.14$67.005.57%2.93%
Star Buld Carriers Corp.SBLK6/1/22$33.30$31.69$35.0020.83%
Open RecommendationsTicker SymbolIntial ActionEntry DateEntry PriceRecent Price Sell To Price or betterTotal Return
SBLK July 15th $34 callsblk220715C00034000Sell pending$1.25$1.60
As of close on 5/27/2022
SecurityTicker Symbol ActionEntry DateEntry PriceSale DateSale PriceTotal Return
Innovative Industrial Props.IIPRCalled6/2/20$87.829/18/20$100.0015.08%
U.S. BancorpUSBCalled7/22/20$36.269/18/20$383.42%
Brookfield Infras. Ptnrs.BIPCalled6/24/20$41.9210/16/20$458.49%
Starbucks Corp.SBUXCalled8/26/20$82.4110/16/20$886.18%
Visa CorporationVCalled9/22/20$200.5611/20/20$2000.00%
AbbVie Inc.ABBVCalled6/2/20$91.0412/31/20$10012.43%
Enterprise Prod. Prtnrs.EPDCalled6/24/20$18.141/15/21$2015.16%
Altria GroupMOCalled6/2/20$39.661/15/21$407.31%
U.S. BancorpUSBCalled11/25/20$44.681/15/21$451.66%
B&G Foods Inc,BGSCalled10/28/20$26.792/19/21$284.42%
Valero Energy Inc.VLOCalled8/26/20$53.703/26/21$6011.73%
Chevron Corp.CVXCalled12/23/20$85.694/1/21$9612.95%
KKR & Co.KKRCalled3/24/21$47.986/18/21$5514.92%
Digital Realty TrustDLRCalled1/27/21$149.177/16/21$1555.50%
NextEra Energy, Inc.NEECalled2/24/21$73.769/17/21$8010.00%
Brookfield Infras. Ptnrs.BIPCalled1/13/21$50.6310/15/21$5511.65%
AGNC Investment CorpAGNCSold1/13/21$15.521/19/22$155.92%
ONEOK, Inc.OKECalled5/26/21$52.512/18/22$6019.62%
KKR & Co.KKRSold8/25/21$64.522/23/22$58-9.73%
Valero Energy Inc.VLOCalled11/17/21$73.452/25/22$8315.53%
U.S BancorpUSBSold3/24/21$53.474/13/22$51-1.59%
Enterprise Product PtnrsEPDCalled3/17/21$23.214/14.2022$2411.25%
FS KKR Capital Corp.FSKCalled10/27/21$22.014/14/22$2313.58%
Xcel Energy Inc.XELCalled10/12/21$63.005/20/22$7012.66%
SecurityIn/out moneySell DateSell PriceExp. Date$ returnTotal % Return
IIPR Jul 17 $95 callout-of money6/3/20$3.007/17/20$3.003.40%
MO Jul 31 $42 callout-of-money6/17/20$1.607/31/20$1.604.03%
ABBV Sep 18 $100 callout-of-money7/15/20$4.609/18/20$4.605.05%
IIPR Sep 18 $100 callin-the-money7/22/20$5.009/18/20$5.005.69%
QCOM Sep 18 $95 callin-the-money6/24/20$4.309/18/20$4.304.82%
USB Sep 18 $37.50 callin-the-money7/22/20$2.009/18/20$2.005.52%
BIP Oct 16 $45 callin-the-money9/2/20$1.9510/16/20$1.954.65%
SBUX Oct 16 $87.50 callin-the-money10/16/20$3.3010/16/20$3.304.00%
V Nov 20 $200 callin-the-money9/22/20$10.0011/20/20$10.004.99%
ABBV Dec 31 $100 callin-the-money11/18/20$3.3012/31/20$3.303.62%
EPD Jan 15 $20 callin-the-money11/23/20$0.801/15/21$0.804.41%
MO Jan 15 $40 callin-the-money11/25/20$1.901/15/21$1.904.79%
USB Jan 15 $45 callin-the-money11/25/20$2.001/15/21$2.004.48%
BGS Feb 19 $27.50 callin-the-money12/11/20$2.402/19/21$2.408.96%
VLO Mar 26 $60 callin-the-money2/10/21$6.503/26/21$6.5012.10%
CVX Apr 1 $95.50 callin-the-money2/19/21$4.304/1/21$4.305.02%
AGNC Jun 18 $17 callout-of-money4/13/21$0.506/18/21$0.503.21%
KKR Jun 18 $55 callin-the-money4/28/21$3.006/18/21$3.006.25%
USB Jun 16 $57.50 callout-of-money4/28/21$2.806/18/21$2.805.24%
DLR Jul 16 $155 callin-the-money6/16/21$8.007/16/21$8.005.36%
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%
QCOM Jan 21 $185 Callout-of-money11/30/21$9.651/21/22$9.657.17%
OLP Feb 18 $35 Callout-of-money11/19/21$1.502/18/22$1.504.94%
OKE Feb 18 $60 Callin-the-money1/5/22$2.752/18/22$2.755.24%
USB Feb 25 $61 callout-of-money1/13/22$2.502/25/22$2.504.68%
VLO Feb 25 $83 callin-the-money1/18/22$4.202/25/22$4.206.13%
EPD Apr 14th $24 callin-the-money3/2/22$1.254/14/22$1.255.69%
FSK Apr 14th $22.50 callin-the-money3/10/22$0.904/14/22$0.904.09%
XEL May 20th $70 callin-the-money3/30/22$3.005/20/22$3.004.76%