Friday, January 9, 2009

SPECTRA ENERGY: BUY OF SE/Now own both common and a bond via JBI

The doctors of doom and gloom were out in force today, predicting toil and trouble ahead.  The Boston Federal Reserve President sees the recession deepening in the first half of this year. Recession to deepen in first half: Boston Fed chief - MarketWatch   The economist Nouriel Roubini, who did warn early about the emerging credit crisis, predicted the recession will last two years with the unemployment rate peaking in early 2010 at 9%.  Roubini forecasts recession will last 2 years - MarketWatch   That may only prove to be a tad pessimistic. 

 The most interesting dire forecast that I read today, however, was from a guest columnist at Barron's online, Pat Neal, who is the head strategist of equity derivatives at Jeffries.  It does not matter to me the identity of the author of a column but only whether the argument being made makes sense to me.  Neal argues that the massive deleveraging of credit, which is unquestionably happening, and the shake out in the hedge fund industry, will adversely impact small cap stocks More Woes for Small-Cap Stocks - Most of what he is saying makes sense to me which is why I am extremely cautious now with my small cap adds. 

I am going to put on hold for today any buys of small cap stocks and simply use some time over the weekend to familiarize myself with recent developments in some of the downtrodden names that I previously owned and sold at much higher prices.   

My preference for today was to invest in a company that pays an attractive dividend and has attractive assets that may be undervalued now due to the current malaise.   I also take comfort in knowing that there is a there there. I already own a bond issued by this company in TC form JBITRUST CERTIFICATES JBI DUKE   The company was spun out of Duke Energy in January 2007 and the newly separated company included all of Duke's natural gas gathering, storage, and pipeline assets with the company being named Spectra Energy (SE).  I was just waiting for the price to slide to give me a 6+% yield on the dividend.   As usual, even though I was already familiar with the company as an owner of its senior bond, I went ahead and read the analysts' reports before deciding to take an equity interest, which included the one from Morningstar,  S & P, Barclays and Value Line, with the ones issued by Morningstar and Barclays being the most informative.  Most analysts just have a hold rating on it with target prices in the 21 to 24 range. I reviewed the last earnings release for the second time. Spectra Energy Reports Third Quarter 2008 Results, Net Income Up 26 Percent from Prior Year Quarter: Financial News - Yahoo! Finance The company is not engaged in exploration but the storage, gathering, and transmission of natural gas.  Its asset would be hard to duplicate.  This is a natural gas infrastructure play.  My main concern is not the value of Spectra's assets but the depletion of natural gas reserves needed to fill Spectra's pipelines.  This is another investment, like the recent one in PGN, where I do not expect much upward movement in the price.  Most of the return will have to come from the dividend.  A move to 22 to 24 in a year and a day would most likely provoke serious consideration of a sell, certainly a close to a $8 dollar move from its current price to Barclay's target would cause profit taking, for a 50% move in price of a utility stock, plus its dividend, would be far more than I currently would expect or even realistically hope for. 

I placed a market order to buy SE which was just filled at 16.31. 

The prospectus for the  TC that I own containing the bond can be found using the search term Lehman ABS:
When I posted some remarks on JBI, it was being unreasonably priced and has since rallied from around 16 to the current price of over 23. JBI: Summary for LEHMAN ABS 7.875 DUK - Yahoo! Finance
The FINRA site does have quotes on the underlying bond but I would be very cautious about placing reliance on that information since it only publishes information given to it.  FINRA - Investor Information - Market Data - Company Information  (enter SE, scroll to bond, scroll until you find the underlying bond in JBI). 

The order that I had for the metal did not fill yesterday which is just as well.  I am considering buying it today at a much lower price than my day limit order from yesterday which expired. 

Amended 1:41 P.M. 1/9/09: 

I thought that I would add one comment about JBI that needs some emphasis.  It is not unusual for a TC to have a coupon higher or lower than the underlying bond, and the number of bonds deposited into the trust is adjusted to take into account these differences.  So when you compare the price of the TC with the price of the underlying bond, it is important to know whether the TC has a higher or lower coupon or the same.  In the case of JBI, the TC coupon is 7.875% vs. 6 3/4 % for the underlying bond.


  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator.   I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine.  Any discussion made by me of particular securities  is not a recommendation to buy or to sell.  Trade at your own risk.  Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons.  The sale may before or after the post.  Before buying or selling any stock, even one recommended by a trusted financial advisor,  please research it and make up your own mind which is what I always try to do.  Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news.  In this post, and all others by me, I am merely describing my reasons for purchasing  or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale.  The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile.  Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments.  Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed.  These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

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