| BondsOnline Advisor – July, 2011
By Stephen Taub
NEW in BondsOnline.com: – in depth credit rating analysis for Municipal bonds and energy sector corporate bonds. Ratings back to 2008: a must-have tool for income investors. FREE!
The BondsOnline Advisor strives to present you with income investment insights from analysts throughout the United States. Bonds, 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.
Equity Strategies
Deutsche Bank stresses the oil price and Japanese supply disruption shocks are reversing. Meanwhile it does not expect any significant impacts from the end of QE2. In fact, it expects growth to pick up in the second half. The bank also asserts there is currently a favorable demand-supply balance. “Higher rates on better growth will induce asset reallocation to equities while robust buybacks continue,” it adds.
Credit Suisse Securities says that European-based companies look especially cheap, pointing out that 23% of companies in Europe trade below replacement value, making it cheaper to buy than to build.
Barclays says “low real interest rates should persist, strengthening the valuation argument for equities (relative to fixed income) and offering downside support.”
JPMorgan Chase is maintaining its view of a “Summer of Cyclicals.” More specifically, it is looking for a 10% rise in the S&P 500 from June to August, with leadership provided by Cyclicals. Why? In the past four precedent bull markets, Cyclicals posted double-digit gains in Year 3 (month 22-34 to be comparable to today), the bank stresses. It adds that only one year, however, they beat Defensives, which was the ’90 bull market (Aug 92-Aug 93).
The bank also believes that tax repatriation is on again, and this means big bucks for companies. It identifies 6 high dividend payers that can benefit.
BankofAmerica Merrill Lynch says stay defensive in the near term. The rest of the summer and into year-end is likely to be determined by three key tactical issues–Greece passing new reforms and getting additional EU/IMF funding; the U.S. debt ceiling deal; and second quarter earnings reports and guidance. “While risks around Greece and the U.S. debt ceiling have intensified, risks of an oil or interest rate shock have materially subsided,” the bank writes.
Master Limited Partnerships
It appears that double digit returns are still on the radar with energy MLPs. WE highlight 16 this month.
Credit Suisse Securities points out in a recent report to clients that the current spread between the average MLP yield to 10-Year Treasury is 342 basis points versus its average of 321 basis points since 1999. The average yield of the energy MLPs in its coverage universe is 6.3%.
Citi points out in a recent report the margins, expansion opportunities, and returns on invested capital remain attractive for MLPs with significant exposure to the natural gas liquids (NGLs) supply chain. It told clients it expects second quarter results for these particular MLPs to show substantial improvement both sequentially and year-over-year, while consensus estimates are likely heading higher.
Closed-End Funds
Stifel Nicolaus tells clients its favorite subsector among closed-end equity funds are covered-call funds, citing a favorable risk versus reward scenario. The most basic covered-call strategy consists of holding a stock or portfolio of stocks while at the same time writing call options on the underlying securities to generate income. We focus on 8 this month in Yield and Income Newsletter.
Fixed Income & Preferreds
UBS states that a bailout package for Greece should help allay sovereign credit risk concerns, and put the US credit markets on firmer footing. The bank has increased the tactical allocation on agency mortgagebacked securities to overweight, and increased the underweight on Treasuries.
And more on trust preferreds (TruPS) and whether they will get called early.
Special Report in PreferredsOnline - 11 Preferred Stocks that Still Show Value.
For a list of securities, target prices, and detailed comments, get the current issue of Yield and Income Newsletter through PreferredsOnline.
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