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.