Income Security Recommendations

BondsOnline Advisor – June 2009

By Stephen Taub

The BondsOnline Advisor strives to present you with income investment insights from analysts throughout the United States.  Bonds, dividends from preferred stocks, real estate investment trusts, or master limited partnerships can be a part of a successful income portfolio – and BondsOnline and PreferredsOnline provide the “Income Investor Tools” to keep you informed.

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Equity Strategies

For complete text and lists of the income securities reviewed this month, including target prices, please see the current issue of Yield and Income Newsletter.  PreferredsOnline subscribers receive this monthly newsletter as part of their subscription.

JPMorgan Chase has been looking for the S&P 500 to close 2009 at 1100 or better, and this was before the early June run-up in stock prices. The basis for this optimism is the belief that a synchronized global economic recovery will start soon. At the same time, the investment bank does not believe inflationary concerns will emerge soon due to the current slack in production.

Morgan Stanley Smith Barney has more modest expectations. It sees the S&P 500 moving to 1000, but they are more upbeat about small and mid-cap stocks..

Wachovia Securities notes that only five of 127 S&P industry groups are higher than one year ago, and 75 of those 127 groups are still down 30% or more from year-ago levels.

UBS Wealth Management added one stock to its list of “dividendrulers – stocks with a consistent dividend per share growth,. UBS notes the stock now meets its historical dividend consistency metric as of the last dividend payment.

Energy Master Limited Partnerships (MLPs)

Morgan Stanley Smith Barney highlights one MLP that it says still holds its top rating.

REITs

Deutsche Bank recently reinstated coverage of U.S. REITs. However, it warned it is taking this step “with a cautious view” since it believes the group is poised to take a bit of a breather after its recent run. DB has initiated coverage of 35 companies: 30 have Hold ratings while just three have Buy recommendations.

Morgan Stanley Smith Barney looks at trades in each of seven sectors.

Utilities

Credit Suisse Securities says that regulated utilities is one industry that has barely participated in the market’s rally since March Credit Suisse points out in a recent report that the sector has trailed the widely followed market indices by double-digit rates.

Closed-End Funds

Stifel Nicolaus said it continues to focus on unleveraged covered-call funds among equity funds and, among fixed-income funds, unleveraged taxable fixed-income funds and leveraged municipal bond funds. “Covered-call funds have the best risk versus reward potential for current investors. These funds typically own a portfolio of equities and at the same time sell call options to generate income.”

When it comes to taxable fixed income funds, Stifel says its biggest concern is the prospect for increased default rates. Stifel Nicolaus recently downgraded two municipal bond closed end funds to Hold from Buy because they traded at a premium to net asset value (NAV).

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