Monday, September 28, 2009

Bought 100 WMT at $49.55/Sold 100 XLI at $26.65/ Temptation of Long Bonds in a Low Interest Rate Environment

1. Bought 100 Wal Mart (WMT) at $49.55 Today (see Disclaimer): The purchase this morning of WMT can only be considered a flair up of whatever old geezer type disease that causes purchases of stocks of this nature. What can I expect for this 5 grand? Not much, though I feel safe with it. It is hard to visualize much downside risk at the current price of below $50, at least in terms of anything other than a short duration fall toward the 52 week low of around $46. The plan is relatively simple. I will hold to sell at $55 or higher, provided that price occurs sometime between now and a year or so from now. Otherwise, I will hold out for a $60 price. The dividend yield is okay for a retailer at a tad over 2%. S & P has it rated 5 stars with a $62 target. Barclays has it overweight also with a $62 target. WMT is selling around 12.78 times the fiscal year 2011 earnings, which ends in January 2011: WMT: Analyst Estimates I am not sure that my memory bank can recall when WMT sold for such a low multiple. The stock is not getting any love from investors since the market rally off the March lows. The stock closed at $49.75 on March 5, 2009: WMT: Historical Prices WMT is the only retailer in my portfolio.

2. Sold 100 XLI at $26.65 (see disclaimer): I bought two ETFs containing industrial stocks and decided to keep one and to sell the other. I am keeping VIS, the one from Vanguard that has a much larger sampling of industrial companies than XLI which is limited to the industrial companies in the S & P 500. I bought XLI on 5/29/09 at $22.16 and will receive one quarterly dividend for the current quarter. Sold out of IR and Bought XLI/ Bought 50 MWA as a Lottery Ticket/Dollar Crumbles with Dollar Index Now Below 80/More Recovery Signs The unrealized profit on VIS bought in late July is over $700 now.

The following snapshot includes XLK which was sold on 10/2/2009:

XLI 100 Shares +$432.16/XLK 100 Shares +$195.17w

A few of my higher yielding stocks/bonds went ex distribution today. PJS, a TC containing a senior bond from First American is ex interest today with its 6 month semi-annual payment, which will be paid on 10/1. This one has been a stellar performer since it was bought during a meltdown at the $7 and change level. Winstream, another add this year, will not have much earnings growth but the generous dividend went ex today also. The best Lottery Ticket over a one year period ever, at least so far, GRTPRF went ex dividend, a yield of 75% based on my $2.9 cost. Another one was the floating rate equity preferred stock from Morgan Stanley, MSPRA.

I am currently trying to resist the urge to buy back some exchange traded bonds that I sold near par value. The urge to find yield when money market rates are yielding near zero is powerful, but I have to remind myself that buying long bonds with fixed coupons, at or near par value, with yields in the 7 to 8% range, involves more risk than I am generally willing to assume. No one knows the future, but I am concerned that we are nearing the end of a long term secular bull market in bonds. I know it is hard to believe, based on experience with bonds since 1982, but there are long historical periods when bonds fail as an asset class. That would have been true for about 20 or so years prior to 1982, with the worst phase of that long term secular bear market in bonds being in the 1970s, to around 1982.

Bond trading is an important part of my asset allocation, and I want to have alternatives other than those available on the stock exchanges in such instruments as Trust Certificates, Trust Preferred and and baby bonds. The following are some links to what I call Gateway Posts on the subject of exchange traded bonds:
Advantages and Disadvantages of Equity Preferred Floating Rate Securities This last category contains stocks that would be listed on a balance sheet as equity, but I view their bond characteristics as predominant over their equity characteristics.

I would not be concerned about the new strictures placed by Fidelity on bond trading two years ago, since I was a Stock Stud back then when I was a young man. Now, being an Old Geezer, I like the stability of bonds and will now have to start using another online broker for my bond trades. As I have become older, my tolerance for being aggravated needlessly has decreased. If anyone has an idea on who to use, please leave a comment or send me an email. The Email address can be accessed by clicking the profile section under my picture to the right of this blog.

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