Each month, the newsletter addresses changes and developments for any company in which a recommendation was made in the past and advises how these may affect holders of such securities and what action they should take. A chronological file of such updates is maintained for subscribers to assist them in tracking their holdings.
The continuing saga of the re-listing of the Assured Guaranty (AGO) preferreds writes another chapter. The company had indicated the preferreds (original symbols FSB, FSA) would be re-listed by the end of the year. On December 31, 2009, they announced a delay and the new deadline is March 31, 2009. The problem was the SEC demanding financial records of the Financial Security Assurance Holdings Ltd subsidiary before it was acquired. This has slowed down but not stopped the process. Both the NYSE and the SEC must approve the re-listing. Listing on the NYSE will improve the liquidity of the security and should result in higher prices. We would recommend buying them at current prices, which are between $16 and $18, but they are difficult to acquire. In the mean time, the company has repeated its guarantee of these A rated securities and that payments will continue. We recommend holding these preferreds. Recommendation: Hold
Enerplus Resources Fund (ERF) is a Canadian Royalty Trust based in Calgary Canada that produces oil and natural gas. The mix is 60% natural gas and 40% oil and natural gas liquids. We last recommended Enerplus in February 2009 at a price of $20.66 and still like it at its current price of $22.96. In fact, the company is part of this year’s high-risk portfolio. It yields 9.4% and for US taxpayer the distribution is subject to a minimum 15% Canadian withholding tax that is eligible for recovery on US tax returns as a foreign tax credit. The dividend gives some inflation protection because of its oil and gas production and also provides some hedge against a weak dollar since dividends are calculated in Canadian dollars. The lower the US dollar the more valuable the Canadian dividend. Recommendation: Buy under $25.00 for high-risk investors.
Harvest Energy (HTE) was bought by Korea National Oil Corporation for $10.00 Canadian per share. The deal closed December 31, 2009 and unit holders received $9.47 per shares in U.S. dollars.
Liberty Media (LINTA), is a spin off of AT&T. Liberty engages in video and online commerce in the United States and internationally. It is best known for its QVC television networks and owns an interest in Expedia, Inc., a travel services company. Moody’s recently downgraded Liberty Media to B1 from Ba2. The downgrade was subsequent to its spin-off of its 57% stake in DIRECTV. The effects of the spin-off include reduced financial flexibility and a greater reliance on cash flow from its QVC television network. According to Moody’s the company now has a less diversified asset base, thus increasing the risk. We think their ability to continue making debt payments is unimpaired and the securities are worth holding. Three of their securities have been recommended; the 4.00% convertible bond of 2029, the 5.70% bond of 2013 and the 7.00% preferred (PYA). Recommendation: Hold
The Nicholas-Appelgate Convertible & Income Fund II (NCZ) is a closed-end fund that invests in convertible bonds and preferreds. About half the portfolio is in convertibles and half in high-yield bonds. The fund invests about 85% of its assets in below investment grade debt. The top industry sector is Real Estate Investment Trusts (REITs) at 14% followed by Pharmaceuticals at 7.00% and Media at 6.00%. The fund is leveraged at 35% and has an expense ratio of 1.71%. It currently yields 12.00% and trades at $8.48, a slight 3.66% premium over its net asset value of $8.20. We have recommended this fund for our Multi-Driver portfolio and it’s a buy under $9.00. Recommendation: Buy under $9.00
Penn West Energy Trust (PWE) is the largest conventional oil and natural gas producing income trust in North America. We last recommended this Canadian Royalty trust in February 2009 at a price of $11.30 for a then current yield of 20.18%. The price of oil and natural gas has increased since then and the units now trade at $17.60 for a current yield of 9.83%. We believe oil and natural gas prices will continue to climb, both because of an improving economy and because of a weakening dollar. Energy is an excellent hedge against inflation. In addition, Canada as a supplier of energy is isolated from political disruption unlike Venezuela and the Middle East. In the event of a global crisis, Canada will remain a stable source of supply, although at much higher prices. The tax advantage that Canada grants these trusts will expire next year, so expect the royalty trusts to convert to a corporate structure this year. In the meantime, the yield is still good and the upside potential will follow oil prices. This security is a good fit in our Multi-Driver Portfolio. Recommendation: Buy
Telephone and Data Systems (TDS) is a diversified telecommunications company that provides wireless and wireline telecommunications services. The company’s 7.60% preferred (TDA) was last recommended in June 2009 at a price of $19.70 for a then current yield of 9.56%. The preferred is actually a bond that trades like a preferred and pays quarterly dividends. It is callable at par ($25.00) at any time. The company recently announced a $250 million share buy back program and the acquisition of a telephone company in New Hampshire. It seems to be weathering the recession well and has over $900 million in cash. The preferred is still a good buy for medium risk investors at its current price of $24.56, which gives it a current yield of 7.73%. Recommendation: Buy below $25 for medium risk investors.