Many of you may have noticed that my top 5 holdings is heavily slanted towards preferred stocks- GKK and NCT, to be specific.
It may seem strange for someone who considers himself a pure mico-cap investor to be invested so heavily in preferred. In GKK and NCT’s case, I like them because I consider them basically equivalent to net-nets- the two are trading for less than the value of their respective company’s net cash and investments after excluding non-recourse debt.
However, I also like preferred stocks in the right situation. Preferreds generally trade for a big discount when the market is concerned with the sustainability of their dividends. If you can identify why they trade for a discount and that the market is wrong to trade them at a discount, you have two very, very effective catalysts for value realization in the preferreds. The first is, obviously, the high yield will attract investor or guarantee you a certain return (providing the price doesn’t detoriate further, but if you correctly identified a mispricing further price deterioration shouldn’t be a long term problem). Second, preferred trading at a large enough discount effectively become the equity of the company. A potential distressed sale of the company or liquidation could be disastrous for common shareholders but could result in a par or near par payment for the preferreds.
So, with all that in mind, I’ve recently been researching a bunch of preferred stocks. Oddballstocks showed me quantomonline.com , which has a pretty comprehensive list of preferred stocks. I haven’t found any that are out of this world attractive to me yet, though people with a specialization in oil and gas might do well to look into ATPG’s preferreds (ATPGP)
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Thanks for the quantumonline link.
What resources do you use to identify firms that trade LEAPs? I’ve tended to use the WSJ list but wondered if you’re aware of better ways to find that type of info.
good luck, look forward to seeing if you find anything! keep up the good work
[...] spent quite a good bit of time recently talking about preferred stocks- I mentioned them in my powerball article on ATPG, and my two largest positions are NCT preferreds [...]