Use access key #2 to skip to page content.

My Recent "Preferred" Investments

Recs

20

July 19, 2011 – Comments (9) | RELATED TICKERS: EPM , ATPGQ , PEB

I fully admit that I have absolutely no idea where the overall stock market is headed over the next several months, year, or even several years.  There's plenty of talking heads on CNBC who will make guesses on that subject for you.  I consider myself to be an investment picker.  I say "investment" picker rather than "stock" picker because I am willing to look anywhere for returns. 

For example, during the height of the credit crisis I was buying corporate bonds hand over fist.  I was seeing spreads between corporate paper and Treasuries that I had never seen in my lifetime and might never see again.  There was bonds from solid companies that were in absolutely no danger of defaulting that were yielding 8%, 9%, 10%, even more for relatively short terms of five to ten years, sometimes even less.  At the time I took advantage of the fear in the market to purchase bonds with outstanding yields-to-maturity from blue chip companies such as Alcoa, Caterpillar, Dow Chemical, Goldman Sachs, American Express, and many others.  I continue to reap the rewards of those investments in the form of interest payments.  Of course, one could have done, and many did do even better purchasing stocks at the height of the panic as well.

My point is that I'll go just about anywhere for a good investment.  Lately I have found a number of interesting investment opportunities in preferred stocks.  The financial sector, specifically banks, are typically one of the largest issuers of preferred stock.  I have been staying away from banks for the most part because I don't like the black box-like nature of their balance sheets.  I recently managed to find and invest in three interesting preferred stocks that are outside of the financial sector.  My investments were in:

Evolution Petroleum 8.5% Cumulative Preferred Series A

Pebblebrook Hotel Trust 7.875% PFD-A

ATP Oil & Gas 8% Convertible Preferred (ATPGP.PK here in CAPS)

Note: This doesn't count the strange merger security that I attempted to invest in when ETE agreed to purchase SUG.  That one worked out even better because a bidding war broke out for SUG that enabled me to close out quickly (perhaps a little too quickly) with an outstanding gain.

All three of the preferred stocks that I mentioned yield around 8% give or take.  I realize that there's always interest rate risk that one takes on when they enter into a fixed rate investment like these, but at 8% that's a risk that I'm willing to take with a portion of my portfolio.  8% beats the pants off of the 0% that my cash was earning just sitting there. 

As an added bonus, I was already very familiar with all three of these companies, whose common stock is already very popular with many here at The Motley Fool.  The least attractive attribute of the three issues is the fact that ATP has the right to pay the dividends on its preferred stock using its common stock.  This negative is at least partially, if not completely offset by the fact that the ATP preferred stock is convertible preferred, which will enable one to take advantage of some of the potentially significant upside that many believe the company's stock has now that the problems with the credit crisis and with drilling permits in the Gulf of Mexico are starting to ease.

Now these aren't exactly the most liquid securities in the world, but I'm fine with that because I sized my investments in them appropriately and they are money that is in my investment fund, which is separate from the emergency funds that I have set aside.  This is money in retirement and college savings accounts.  I have no problem taking 8% on a portion of that money and watching it double in 9 years. 

Do I want to do better than a total 8% annual return?  Of course.  That's why a portion of my money is invested in common stock that could theoretically do better than that.  I have been particularly fond of purchasing stakes in companies that are involved in spin-offs lately.  There sure has been enough of them.  I currently own ITT, WMB, and UAN, all three of which are spin-off related.  I recently added a small position in a fourth spin-off situation that I am not allowed to talk about yet per TMF trading restrictions.

Anyhow, those are my thoughts on some of my recent investments.  I'd love to hear others' thoughts on these stocks as well as suggestions of other interesting, special situation-like investments that are on others' radars.  Thanks for reading.

Deej

9 Comments – Post Your Own

#1) On July 19, 2011 at 3:24 PM, TMFRosetint (99.00) wrote:

Hey Deej,

It's always good to see coverage of alternative investments on CAPS. This reminds me of when I found out that Kansas City Southern had a convertible preferred that traded over-the-counter, and very frequently could be purchased at a discount to the 33.3333 shares you could convert it into. Liquidity was obviously a factor, but there was a pretty good arbitrage opportunity there for a while.

KSU recently forced conversion, though, so that opportunity no longer exists. A great site for looking at preferreds, convertible preferreds and exchange-traded debt securities is Quantum Online. You need an account, but it's free and the site is pretty comprehensive.

 On one last note, thanks for starting to follow me recently. I think your stuff is some of the better analysis on the site, and I urge you to keep it up.

 Best wishes,

Scott 

Report this comment
#2) On July 19, 2011 at 4:19 PM, TMFDeej (99.41) wrote:

Thanks for the kind words, Scott.  Your blogs are always some of the best out there.  It's refreshing to see posts about investing rather than politics and such.

I've seen Quantum before, but have not looked at it in a long time.  Thanks for reminding me about it I may have to hop over there again.

See you around.

Deej

Report this comment
#3) On July 19, 2011 at 5:58 PM, Borbality (46.96) wrote:

Any opinions about the S&P preferred index? 

iShares has an index fund for it (PFF) and it yields more than 7%.

It's basically all financials, but would there be much danger in parking a bunch of cash in there with a stop-loss?

 

Report this comment
#4) On July 20, 2011 at 4:27 AM, TMFRosetint (99.00) wrote:

@TMFDeej:

I'm glad you tend to like my blogs. I'm pretty proud of my Anatomy of a Multibagger blog, and am pleased that it received some feedback other than recommendations. I obviously love getting those too, but feedback is better and can help show me where I need to improve.

That's why I was somewhat disappointed that my Skechers blog, for being seventeen or eighteen pages in Open Office, didn't receive a single comment or criticism. Admittedly it was a much drier read, but I hope that someone takes issue with what I have to say every time that I post so that I can learn from others and help others learn.

I feel as though CAPS is not living up to its potential. As great as the community is, there's a lot of stuff posted here that is largely spam or irrelevant to investing. On other web boards I go to, such content is usually erased or there is at least an option to ignore it. That doesn't seem to be the case on CAPS, which I think is unfortunate for those of us who are more interested in investing content than certain people posting three blogs in as many hours about how the world is coming to an end.

If you ever want to contact me and talk about investing in a more in-depth manner and without any spam, feel free to contact me at hallshadowcaps@gmail.com. If you do, I will refer you to my private e-mail address that I do not want to post here.

In any case, thanks for your compliment. I'm looking to have some more content out reasonably soon.

 Best wishes,

Scott 

Report this comment
#5) On July 20, 2011 at 9:45 AM, djemonk (< 20) wrote:

@HallShadow, can you provide links/URLs to your blogs?  If TMFDeej is checking out what you read, then it's probably some pretty good content.

Thanks!

Report this comment
#6) On July 20, 2011 at 9:54 AM, TMFRosetint (99.00) wrote:

@djemonk: Sure. These are the only three worth reading, though. They're in order from most recent to oldest.

 

http://caps.fool.com/Blogs/the-anatomy-of-a-multibagger/614550

http://caps.fool.com/Blogs/trash-or-treasure-skechers/535412

http://caps.fool.com/Blogs/ssn-an-undiscovered-oil/435714 

Report this comment
#7) On July 20, 2011 at 10:01 AM, TMFDeej (99.41) wrote:

Borbality I know some very smart people who have owned the preferred stock ETF for quite some time.  I personally haven't bought it because as you said it is very heavily weighted towards financials.  Besides I tend to like to purchase individual investments in bonds and preferred stock rather than using funds.  Having said that, the ETF should be diversified enough to protect against any major blowups, other than of course a dramatic rise in interest rates...which would hurt most preferred offerings anyhow.

Your plan of setting a stop would probably work, but I don't use stop orders myself.

Deej

Report this comment
#8) On July 20, 2011 at 10:15 AM, TMFDeej (99.41) wrote:

BTW, an interesting alternative to PFF is CHY.  It's a closed-end fund thats run by Calamos.  As you can see from this link, its holdings are much lighter in terms of financials than PFF.

http://www.calamos.com/fundinvestor/closedendfunds/CEFund.aspx?name=CHY#TabComposition1

Deej

Report this comment
#9) On July 20, 2011 at 12:41 PM, Borbality (46.96) wrote:

thanks for the tip on CHY! 

Report this comment

Featured Broker Partners


Advertisement