Mid Day Rambling

While it is nice to see that the market indexes for common stocks are rising today we wish we could say the same about preferred stocks and baby bonds, but it is not the case.

Preferred stocks are off again today and the usual ‘suspects’ are leading the charge lower–shippers and lodging REIT preferreds are off sharply.  Shares in quality issues like Public Storage (PSA) and PS Business Parks (PSB) which were already giving us the best current yields of the last few years are getting a little bit better with some moving above 6%.  All of the Eagle Point Credit term preferreds and baby bonds are hitting new lows and now are carrying current yields in the 7-7.75% range.

As we mentioned previously we are just ‘watching’ for a day or three–although we have to say that watching while deals are being made is difficult–BUT we know that with preferred stocks the chances that they are going to bottom and then run sharply higher quickly is not likely to happen.

Here is what will happen with the shippers in particular.  Some buyers thought they were buying ‘bargains’ at $23–only to watch them fall further to $20.  Now the ‘nervous nellies’ are worried the companies are going broke (or some such conclusion).  After making a ‘base’ in price we will start to see a gradual rise in pricing–each time a price rises 50 cents or  a dollar above the base all those folks that bought at $23 will say ‘I’m out’ and sell for a loss which will likely push the price back down a bit.  This will go on for weeks-if not months.  With this we will have the retail investor ,again, buy high and sell low.  Investors really need to review the fundamentals and their needs and if the company still meets their needs they need to hold on and have a little patience–with that it is likely they will be able to sell at some point for a capital gain while collecting their income.

 

39 thoughts on “Mid Day Rambling”

  1. Conversations here are always interesting. Reviewed the CHS financials last couple of days just to make sure I wanted to add to CHSCN or any of the others. I do.
    Tech Guy, last year CHS energy was around 23% of revenue and about half of net income.

  2. Unless inflation goes haywire and 10 year treasuries go back to 6%, then I am quite happy to own ~7% yielding good credit prefs below par value.

      1. Steve, there are decent quality in 7% range. But not investment grade. But there are some options. SRC-A is at $20.44 and of decent BB quality and plus 7%. A few, but I really need QDI for now and there just isnt much up near 7%. NISOP and EBBNF are closest for me to hitting 7%. The rest I own are in lower 6% or even lower term dated. A little better relative value in reit and debt type issues for yield in what I look at anyways, but tax issues negate that differential for me.

        1. My recent over 7% buys include SRC-A, DLR-H (low IG), AMH-D, OAK-B (IG), and a ton of SNHNI (IG) that I bought low $18’s but flipped low $20’s. It actually went into the $17’s but I wasn’t quick enough. None of these are recommendations just examples. There is a ton of stuff including IG paying just under 7% right now. I bought some CHS issues through this downturn and for that I got a bloody nose and the knowledge not everything over 7% is a gift. Tomorrow might get interesting.

          1. I like REIT prefs as they have hard assets that don’t depreciate over time with some maintenance capex (as opposed to shipping) and most now have reasonable leverage (below 40% debt) having learned from the financial crisis. Some above 7% are SRC-A, any of the AMH issues, RLJ-A, QTS-A. You can also go super high quality and get 6.3% yields with the likes of NNN (very little debt) or FRT-A (6%).

          2. I own OAK-B and SNHNL. DLR-H is what I call a mixed IG ( low IG by Moody’s, high speculative BB+ by S&P) and on my buy list

            I am primarily looking to hold, I stink at flipping.

        2. I have picked up KMPA and ALLY-A during the sell-off. So yes, below investment grade has some good buys. IG in high 6% range and above are very hard to find. When I find them, most are what I called Mixed IG issues. I own several of them. These are SP and Moody’s ratings where one is low IG and the other is speculative. Finding IG’s where they both agree at a good yield is even tougher.

          But that’s why we look every day.

    1. The problem with this thesis is why be A rated offerings like USB-O be down to $24.50? Well because it only pays 5.5%. Creates 2 variables to solve. Need companies who have great credit ratings with a minimum coupon of 6%, and ideal coupon of 7%. We cannot easily solve for the fact that companies have lots of debt – that’s a function of time. Inflation if under check will have some resolution depending on fed forecasts.

      This is of course, my view of the world which may be wrong

      1. Steve, I had to check..USB-O is down 13% YTD and still isnt but 5.8%. A constant reminder how much price droppage must occur to move yield. Its down to $22.20. Your yield sweet spot in relation to quality balance sheets is my line of thinking also.

        1. Sorry I meant USB-P in my comment. It’s down to 24.50 and paying 5.61%

          Yes, it has to be a huge price drop to get the yield up.

          Right now, I don’t see an easy answer because I believe (1) some issues are going down due to their coupon and yield and (2) some issues are going down due to debt concerns about the company & debt in general. Then factor in the other items like duration risk and this is a TOUGH equation to solve for.

  3. Hi All, Purchased GLOP-C on 11/12/18 through Fidelity (Ouch!). Div payment date noted as 12/15 but not distribution has shown up in my Fidelity account yet. Has anyone received their GLOP-C dividend yet? Many thanks for any insights you have.

    1. Hi SunnyFlorida–GLOP-C doesn’t pay their first distribution until 3/15/2019—given that shares were issued on 11/7/2018 the 1st payment should be a large one.

    1. I use the website Gurufocus. I don’t know how meaningful the Z-score number is in the case of Spark Energy. Probably meaningless

      1. I found it on same site while I was waiting for your reply. I was pretty surprised at some of these ratings. SPKE does look pretty good. AT&T looks horrible by contrast. I need to do some more research on this. Thanks. Always looking for different ways to analyze things

  4. Staying the course Tim – focused on the compass. Swapped a few on relative value gains and adding a few on opportunity to average down for example my long-duration and long-term hold (KTBA). Just a few minutes ago snagged another slice of LANDP. Recently added AXO (formerly BOFIL) which has been a rock-star through this e-ticket ride. With TNX action seems we should be going the other way! Though all current indicators point to moderation of rates, though staying mindful there’s every possibility of a reversal to the north in 2019. Best to all!

    1. Alpha, I joined again with LANDP. Bought at 25.28 and we get the divi tomm. This has been a great little spike flipper over the years for me..Or a good place to hide out and hold…Take your pick.

  5. Did CHS Coop get into energy? I haven’t looked at there books in some time.
    Tnx

    1. Own two small refineries Kan and OK. Retail outlets so: internally vertically integrated to a good degree. Their site requires digging.

  6. I bought some SPKEP today. Not sure how accurate it is but their Altman Z score looks pretty decent compared to other high yielders out there.

    I’ll probably get crushed

    1. Yeah, you probably will, lol. I share your pain. They should change their symbol to

      PAIN-A

  7. Sound advise, Tim, but I caved on one issue. I sold off my CHSCN at a loss and bought SRC-A $19.66 that dumped off even more. I have lost faith in CHS and should not have bought. My bad… Walk away time.. I could really clean up my portfolio and ditch NSS too. But I will hold.

    1. I just bought 300 more EBBNF at $17.76 after seeing it drop on TSX. This could go down more.. I got 1400 shares which is about as far as I will go here. Its a pipeline and oil is dragging prices down here. I am not a big pipeline and oil guy, but I trust Moodys analysis and Endbridges 64 years of continuous divided payouts. I am fine holding this long term, but really want to get out of NSS as soon as I can. If it hits $17 I will buy 300 more but that will be my limit.

    2. Hey Grid! No pain no gain! CHSCL is my largest position. I can take the pain with this one. The that eats at me is GLOG-B. I own a chunk but what a dog! I’ll be leaving in three weeks for a month in Hawaii. Maybe I can forget I own it.

      1. I added to my CHS. The time to sell was 2 years ago when they were all trading at 27-28. I didn’t sell then, but I am glad to buy now. CHS is not going away, no way no how.

        1. Yep! Bought more yesterday. A little more pain today but like gas, eventually it’ll pass.

          1. I couldnt handle it, Retired..I sold..The good thing was I bought SRC-A with CHSCN proceeds and it presently is up 99 cents since I bought an hour ago or so. There was a major flushout there… But I am routing for you guys!

            1. Nice trade! As I’ve stated before, I’m more focused on generating interest income. I think CHS will be fine in the longer run.

              1. Retired, I am sure you are fine. I just used today to get back to my roots of what I own and trade…It wasnt too many years ago if it wasnt a utility preferred, I wasnt touching it…. I sold off my NSS after it got back above $23. I got great entry points on some new/old issues I like and am staying in that lane for now. Credit wise the only real flea bag I have now is ALLY-A which I have a bit oversized position.
                I had 2 rules I broke and it cost me…I always said if oil dipped below $50 I would sell NSS…Didnt follow the plan…greed…I also have a rule to never invest in a company with accounting issues…Didnt do it (CHSCN)…..If I cant maintain my discipline, I need to buy issues that stay away from that.

              2. Did some CHS research yesterday and with a bit of digging found ‘only’ about $20MM in private debt ahead of the five pref issues. Also, a pending $15MM lawsuit settlement in Brazil that they are apparently looking at a potential settlement on the books in advance. Don’t be surprised if there is some price drop in CENEX based on some professional industry entertainment hokum by some junior writer to deliver a story along with the forecast of rising fertilizer prices this Spring.
                There is a presence in an EM growth market by suggestion, but no idea how much of an influence by percentage.
                That’s about as much “analyst report writing’ that I can do off my company “scribble sheet”.

      2. GLOP-B is the best buy in terms of risk/reward but do not ask me if this is the bottom. A rebound to $23.50 looks reasonable as soon as the dust settles.

        1. I bought 2 slugs of GLOP-B in recent days, really like it here too. Better floating terms than C and I like that it floats a lot sooner than A. All 3 current yield are mid 10%. I don’t mind getting involved with the high yielders, I’m looking for both Income and potential Capital Gains. Can stomach some pain, HLMP, GMLP, GLOP and TGP Preferreds all will present good opportunities at some point in my opinion. GMLP and TGP both out with decent buyback announcements recently, the common is cheap in most of these names too. I like the LNG shippers, well except for DLNG. Not for the faint of heart though.

  8. The hated spark energy is getting pounded down again today. I have some shares in spark. The last earnings statement on Nov. 1st was not that bad. Sales were up 20 % over year ago quarter. They beat estimates too. The only news is that there vice president and general counsel resigned this week.I guess that scared a few. I might buy a little more if we ever find the bottom.Not wanting to mess with the falling knife till it stops.

    1. Yes Twinjett–I saw that announcement, but it likely didn’t mean anything at all–folks just want out. It is on my watch list, but not this week I don’t think.

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