Here Are 2 Stocks That You’d Have to ‘Pry From My Cold, Dead Hands’
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I was delighted by the response to posting the links in my PREFS worksheet yesterday. Real money in the column. If you requested access and haven’t yet been granted permission to view the sheet… wait! I’m working on it! That spreadsheet is, as the kids would say, the way I roll.
It has large descriptive copy attached passages about each security from the website that is my fixed income investment bible, http://www.quatumonline.com. These descriptive points are very important and provide the kind of information not available on schlock-filled sites like Robinhood (HOOD) or Seeking Alpha.
This information—purchase dates, maturity dates, floating rate features, etc.—is critical to understanding bonds and preferred stocks. I’m sorry if it involves more than a snarky scream like “Netflix BUY!” (NFLX) or “Elon Musk is unassailable” (TSLA) on FinTV, but capital preservation comes at a cost. More homework.
That’s when things get tricky, and active asset managers like myself have to prove our mettle. Interest rates are in a strong upward trend, the like of which has not been seen in decades. The last period in the bond market — as I noted in yesterday’s column, I’m using 12-month UST as a reference — that remotely approaches what we’ve seen over the past 12 months is the period from April 2004 to October 2007. everyone knows how that ended.
If you know that interest rates will rise, you can choose a portfolio management decision to accept a decline in fixed income securities against par in order to receive income streams. I am. PREFS was down 2.94% from inception on 05/27/2022 from yesterday’s close and this morning when I checked it was down 3.02%. Oooooooh. So what? PREFS yields 6.63% annualized, which only increases as income payments are reinvested. How does it compare to FedEx (FDX) today?
And that’s the whole point. The best thing about investing against par is that we can opportunistically reinvest dividend income in securities trading below par. This gives us what we call “natural call protection”.
Six of the 10 titles in PREFS are currently trading below par, and I’m a little surprised that not all of them have fallen below par. Two that are not are (CUBI-E) and (ENBA) , securities offered by clients Bancorp and Enbridge with floating rate features. They are gold in this interest rate environment. Pure, unadulterated Charlton Heston “feel it from my cold, dead hands” titles right now. In other words, I don’t sell them.
But with six out of 10 names trading below par, it gives me the opportunity to shop, which I do every quarter when earnings start paying. These reinvestment trades are limited only behind the paywall of my site http://www.excelsiorcapitalpartners.com. . Hey, I gotta make a living!
Sales outlets aside, just be very be careful with the nest eggs here. Today is quad-wid Friday, so there will be some shenanigans with individual securities. However, remember that the numerical price of a security only really matters when the options are waiting to expire. But the real one valuation of the underlying company of the share is always important every damn day, even if the numerical stock price isn’t.
Meta Platforms (META) was valued nearly $900 billion last September. Today? Under $400 billion and still falling. It is true, and it is stagflation. Capital losses hurt. If you want to avoid them and can handle small, short-term price pressures from higher interest rates, PREFS is a nice way to roll.
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