Wednesday, April 22, 2009
In one of my posts (one of the non-Stanford posts a few of you read), I wrote of my wife’s no-hassle junk bond portfolio. And I also wrote a post about bonds overall. I’ll link to that.
If you’re new to this, start there. LINK.
Only us junkers have noticed, but JUNK has been ON FIRE lately, so this portfolio is up on average about 10% this year. A few of the bonds have become pricey over the last weeks.
But I still think it’s a good example for investors who may be new to bonds or junk bonds. Fixed income can be more than a CD. And should be. My wife put this together with a little help from me and as I explained she is NOT a financial expert. So with a little work (and money), you could too.
Click on the table to get a bigger version.
Here we go:
1. Advanced Micro Devices. This is actually a convertible bond with the “convertible part of it worth very little (convertible at 20…stock is around 3). So forget that. AMD is Intel’s only real competitor these days. Things aren’t that great for AMD these days with high debt and sales down,, but they have a solid backer in an investment firm from Abu Dabi. This is the high-risk play of the portfolio. A coin flip, if you will. But the wife thinks the odds of AMD of surviving are better than of it going under. So she made the call.
2. Alcoa. The large aluminum company. This bond is actually “investment grade” according to S&P. My wife calls this an industrial “too big to fail”. I thought the balance sheet was a bit heavy in debt…but they cut the dividend, so that means more money for bondholders.
3. Chiquita Brands. The longest maturity in the portfolio with 5 ½ years left. Bananas. My wife likes bananas.
4. Corrections Corp of America. These guys operate jails for a number of states. Anyone think that business is in a recession? Of course, there is no such thing as riskless. Nice short term bond.
5. Davita. I mentioned this bond in my J-Word Junk bond primer/rant. These guys operate kidney dialysis centers. As far as necessities go, that’s a service that is hard to do without.
6. Home Depot. It seems my wife single-handedly expects to keep these guys in business. She loves Home Depot. This is a bond that she might actually sell. It was bought below par and with less than 2 years left is at 102-104%. The highest graded bond in the portfolio at BBB+.
7. Jo-Ann Stores. This is an arts and crafts and sewing material retailer. Nothing is recession-proof, but these guys do ok when people make their own clothes or other stuff. The wife liked the stores, I liked the balance sheet. They have a credit line in excess of three times the bonds outstanding. And they have been buying the bonds back. S&P says CCC, the wife says…buy, buy, buy.
8. Owens Illinois. Only a year left on this one. Glass maker. Wife thinks they’ll make the payment too.
9. Seagate Technologies. Disk Drives. My wife takes WAY too many photos and has too much music. Always running out of space. Seriously though, business isn’t great, but these guys managed to issue new debt to the market so they should be able to refi by the time these bonds mature.
10. Starwood Hotels. Sheraton, Westin and several other brands. My figures that the collateral is good and if it comes to the worst we can turn in the bonds for a time-share or something.
That’s it. A nice little collection of junk, if you ask me. Short maturities. Somewhat diversified (no financials…hmmm) and a yield to maturity of 10.27% if nothing goes wrong. Too good to be true? The wife doesn’t think so, and neither do I.
Posted by Alex Dalmady at 1:04 PM