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This newsletter will be a little different. Instead of an overview of markets, that I normally do – I’m going to do a bit of an early recap of 2022 in the Energy markets and specifically what we did and how it worked out.
For this, it’s somewhat difficult – I’ve got my portfolio and you have yours, but for the most part what I did personally mirrored very, very closely what I recommended to subscribers and hopefully what you did. I think we can therefore ‘prove’ our concept of strategy — of blue chip core holdings backed up with outer core and speculative energy stocks, all protected with covered calls when appropriate – and hopefully continue to follow this strategy (and success) through 2023.
For now, the markets are in what I would call (using Larry Fink’s word) “Malaise” mode. In the energy markets there are truly nothing but bullish signals that I see – but the world economic outlook does not currently have many optimists left, and stocks are in a “recession expectation” that is currently impossible to shake – oil is losing believers and slowly disintegrating in price as well.
This is undoubtedly temporary – and will deliver us terrific stock opportunities as the month progresses and into early 2023. But with the year end tax-loss selling that’s certainly about to add to stocks’ pressures, along with the CPI numbers and Fed decision later this week, we are in no hurry to buy stocks – even oil stocks. I’ve already outlined some targets for some prime oil stocks in last week’s newsletter, and will wait another week for more – we have some time (and cash!)
Instead, let’s turn to three of my most quoted stocks and how they fared for 2022 – remembering, of course, that the general stock market was down near to 20% for the year.
Exxon-Mobil: You knew I’d lead off with this one, and why not – We established our core position in Exxon back in June and July of 2021 in the low $61-62 dollar range, long before the energy markets went ballistic starting in December of 2021. Still we again recommended picking up shares in March of ‘22 at just about $76 and continued recommending the shares just about every time they got near to or under $90 later in the year.
Let’s forget about the straight up alpha returns from a stock that we bought at either $65 or $75 and spent much of the Fall above $110, and even now with oil near $70 is hovering at $105 a share. Let’s also forget the steady 4% dividend (that was 5.5% when we bought shares) in an interest rate environment that until recently was close to zero. We continued to buy options protection against the down side all through 2022, and either retired them and rolled them over close to expiration, or took the premium right to expiration and cashed in – and never risked losing our initial commitment. By my reckoning, I collected an extra $1034 of premium for every 100 shares of stock I owned – an annualized return of 15% EXTRA using a $70 share price average. (Your numbers might be somewhat different from mine, but shouldn’t be significantly so). Add the dividend and alpha returns – and remember this is Exxon, one of America’s blue chip energy behemoths – and by any evaluation, you’ve done well. And you STILL own every share you ever bought, and the paper profit on them.
Range Resources (RRC) – my prototypical US natural gas company. It was more volatile (of course) and doesn’t provide the dividend protection that Exxon does (of course). We also did well in initiating this position, beginning our accumulation in July 2021 at $15.60 a share. But we also recommended it early in 2022 and during multiple dips during the year. In no way should any subscriber own shares above $26. It’s been up and down, but always seems to stop going down right about there, at $26 – For my portfolio, again ignoring dividends and alpha gains, I collected $545 in premiums for every 100 shares I owned. Even if your average buy is closer to $26, that’s a 21% return for 2022. Not bad, and again, we still own every share we ever bought.
FuelCell (FCEL) – This speculative hydrogen stock has been through the ringer in 2022 – and proof that an outright buy and hold strategy for these kinds of stocks is very much a crap shoot. I purchased shares of FCEL in January of 2022 at $3.55 and again at $3.25 in May. With current prices of $3.44, we’d be looking at nothing more than a miniscule winner if we just bought and held. But with our options strategies, I collected $195 for every 100 shares I owned in 2022 – a return of 57%. For a stock that’s done virtually nothing in 2022, that ain’t hay.
These examples are terrific ‘proof’ that our strategies towards the very volatile energy markets in 2022 have worked exceedingly well in a down year for the general stock market and an oil market that’s moved from $77 a barrel at the start of the year to near $130 a barrel to now trade BELOW where it started in January. That’s a pretty convincing trio of energy investments.
And I am convinced we will continue to find success with these strategies in 2023.
That’s all for today
dan@dandicker.com
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