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Income Advisor
Conservative investing. Double-digit income.

October 5, 2022

It’s been a furious rally so far this week. It’s only lunchtime on Tuesday. But I’ll take it.
September was an abysmal month, in a rotten third quarter, in an awful 2022. Investors can’t contend with persistent high inflation, a hawkish Fed, and a recession. The most recent selloff took just about every stock down with it.

The Worst May be Over

It’s been a furious rally so far this week. It’s only lunchtime on Tuesday. But I’ll take it.

September was an abysmal month, in a rotten third quarter, in an awful 2022. Investors can’t contend with persistent high inflation, a hawkish Fed, and a recession. The most recent selloff took just about every stock down with it.

Does this week’s rally mean the bottom is in? I wouldn’t count on it. It could be a near-term bottom but there are too many unresolved questions to think we’re out of the woods. There is still no visible timeline on when inflation will subside and the Fed will be done tightening.

The market is encouraged this week by a report that U.S. manufacturing has slowed to the lowest level since May of 2020, the heart of the pandemic, and a United Nations agency warning that aggressive rate increases may induce a global recession. It seems that bad economic news is good news because it may bring on the end of the Fed’s tightening cycle.

That’s where we are. A recession may imply a quicker turnaround and a relief from the seemingly endless inflation and hawkish Fed. We’ll see how this plays out in the weeks ahead.

The indiscriminate selling of the past few weeks has left some high dividend stocks at bargain prices, particularly the midstream energy companies, ONEOK (OKE) and The Williams Companies (WMB). These companies are ideal for the current environment as they offer high yields from an industry with strong current dynamics and can weather inflation and recession.

These two stocks offer the best buying opportunities right now.

Trades This Past Month

September 16th
QCOM Sep 16th $145 calls at $11.75 - Expired

September 28th
Purchased Realty Income (O) - $60.37

Portfolio Recap

Global Ship Lease, Inc. (GSL)
Yield 9.5%
GSL sold off with the rest of the market over the last couple of weeks but stayed above the July lows, indicating that a bottom may already be in. It’s true that shipping rates have fallen amid recession fears. But GSL already locked in higher rates than have existed for many years and added a significant amount of new higher priced charters. Operationally, the company is strong and longer-term trends still favor container shipping. It has fallen in sympathy with the overall market. HOLD

Intel Corp. (INTC)
Yield 5.7%
The chip maker just made a massive investment in chip production. It partnered with BIP for a $30 billion investment in a semiconductor fabrication plant where Intel will maintain majority control by providing 51% of the capital. It’s a big and bold move. But the stock is still under pressure as growing recession worries weigh on projected PC sales over the next year.

The tech sector, and INTC in particular, is way oversold. These are stocks that can make up for lost time very quickly when investors warm to them again. And they will eventually because we are in a technological revolution that is likely to become even more dominant in the years ahead. But we’re not out of this muck yet. We’ll see if the tech sector continues to be under pressure in the days and weeks ahead. HOLD

Yield 7.0%
Despite being well positioned to handle inflation and even recession, midstream energy companies still got clobbered in the recent market selloff and OKE fell to a new 52-week low. Nevertheless, it has qualities that should be highly desirable in the current environment. And OKE has been rebounding sharply this week. The stock pays a huge dividend that remains far above traditional fixed rates. Business remains strong and will likely continue to be even in a recession. And the stock is cheap. As the panic selling abates, OKE and other midstream energy players should thrive again. BUY

Realty Income Corp. (O)
Yield 5.1%
O took a huge hit along with just about everything else recently and fell to a new 52-week low from near the high in the middle of August. The market is freaking out over higher interest rates as dividend stocks become less attractive relative to fixed rate alternatives and many REITs pay more to borrow and expand. But Realty should benefit from a recent huge acquisition without having to borrow money at higher rates. It also pays a better than 5% yield and has a history of trending higher over time, especially from lows. BUY

Star Bulk Carriers Corp. (SBLK)
Yield 37.5%
Most of what I said about GSL above is also true for SBLK. The intermediate-term prognosis remains excellent for dry bulk shipping while the market is struggling with newfound worries about the U.S. and global economies. But dry bulk shipping still has a highly favorable supply/demand dynamic despite rates having dipped recently. Half of the position was sold to be cautious in this turbulent and unpredictable market. Hopefully, the remaining position can hold up and we can collect another huge dividend. HOLD

Qualcomm Corp. (QCOM)
Yield 2.7%
The recent worse-than-expected inflation report and rising interest rates are taking the tech sector and QCOM down with it. Investors worry that inflation and high rates will cut into growth margins. At the same time, a slowing economy will hurt smartphone sales and Qualcomm’s profits. But the company is projected to continue to grow earnings by 23% in the second half of the year even with slower phone sales factored in.

The stock will trade in sympathy with the sector and likely be under pressure as long as the tech selling continues. But because of Qualcomm’s strong growth and operational performance it tends to recover as soon as the selling abates. It is recovering strongly so far this week. Tech stocks will rally again and when they do QCOM should make up for lost time in a hurry. HOLD

Visa Inc. (V)
Yield 0.8%
As a cyclical stock, V gets selling pressure when the market reels over recession worries. But inflation isn’t a problem for Visa. On weakness, V usually falls to right around the 200 per share level. But the recent selling has taken it to a new lower level. Profits are soaring as Covid restrictions have come down internationally, but the stock has been held back by recent panic selling in the market. V is another stock that rebounds quickly when the market stabilizes, as it is doing this week. HOLD

The Williams Companies, Inc. (WMB)
Yield 5.9%
Just about everything has moved lower, and even WMB is no exception. But the same things that I mentioned above about OKE are also true of WMB. Natural gas demand is resilient. Earnings per share shot up 29% in the first half of 2022 versus the same period last year. The recently reported quarter featured a whopping 48% earnings per share spike over last year’s quarter. Williams also increased 2022 earnings guidance. Like OKE, it offers value and a high and safe yield in an industry with strong dynamics. BUY

Existing Covered Call Trades

Sold OKE October 21 $65 calls at $3.40 or better
After the recent all-inclusive market bloodbath, OKE is miles away from the strike price at this point. OKE is rebounding strongly and still has more than two weeks before expiration. But it is still a little more than $10 per share below the strike price. As I mentioned above, I like the prospects of OKE over the rest of the year and am happy to keep the stock. It’s also great for generating a big income in this ugly market.

Open RecommendationsTicker SymbolEntry DateEntry PriceRecent PriceBuy at or Under PriceYieldTotal Return
Qualcomm Inc.QCOM5/5/21$134.65$117.22NA2.66%-10.42%
Visa Inc.V12/22/21$217.96$181.65NA0.84%-16.21%
Global Ship Lease, Inc.GSL2/23/22$24.96$16.19NA9.51%-32.68%
ONEOK, Inc.OKE5/25/22$65.14$53.55$67.007.30%-16.51%
Star Buld Carriers Corp.SBLK6/1/22$33.30$17.94NA37.47%-39.31%
Intel CorporationINTC7/27/22$40.18$26.97NA5.31%-32.19%
The Williams CompaniesWMB8/24/22$35.58$29.43$38.005.94%-16.19%
Realty Income CorporatonO9/28/22$60.37$59.22$63.005.11%-1.49%
Open RecommendationsTicker SymbolIntial ActionEntry DateEntry PriceRecent Price Sell To Price or betterTotal Return
OKE Oct 21st $65 callOKE221021C00065000Sell8/24/22$3.40$0.07$3.405.22%
as of close on 10/03/2022
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%
Innovative Industrial Props.IIPRSold3/23/22$196.317/20/22$93-51.23%
One Liberty PropertiesOLPSold7/28/21$30.378/24/22$25-12.94%
SecurityIn/out moneySell DateSell PriceExp. Date$ 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%
SBLK July 15th $134 callout-of-money6/1/22$1.607/15/22$1.604.80%
QCOM Sep 16th $145 callout-of-money7/20.2022$11.759/16/2211.758.73%
Tom Hutchinson is the Chief Analyst of Cabot Dividend Investor, Cabot Income Advisor and Cabot Retirement Club. He is a Wall Street veteran with extensive experience in multiple areas of investing and finance.