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The Value Line Investment Survey reviews and ranks about 100 industries on a weekly basis, based on the average Timeliness rank of all stocks within that industry for that week. The assigned ranks indicate expected performance by the industry over the upcoming six to 12 months. The rank assigned to each of the approximately 1,700 common stocks covered by Value Line depends on, among other things, the stock’s historical price and earnings momentum, and indicates expected price performance over the next six to 12 months.

Some investors prefer to focus on just the highest ranked stocks from the most highly ranked industries. There is nothing wrong with this approach. However, there are often bargains to be found in highly ranked industries if one is willing to consider stocks that do not have premium ranks. Such companies will often benefit from the industry’s advance and will be trading at a less expensive price point when compared to their more highly ranked brethren. Micron Technology (MU), Kinross Gold (KGC), and James River Coal (JRCC) are potential examples of just such a situation (a quick overview of each company is provided after the table).

To help the convertible bargain hunters out there find some interesting names, we screened our convertible database to find convertibles from companies in top ranked industries. We then TOOK OUT convertibles issued by the highest ranked stocks. Below is a partial list of the convertibles whose underlying stock is not highly ranked despite residing in a top ranked industry.

Com

 

Recent

Current

Yield to

 

Stock

Stock

Ticker

Convertible Securities

Price*

Yield(%)

Mat(%)

Industry

Price*

Yield(%)

KGC 

Kinross Gold 1.75s2028         

99.88

1.8

1.8

Mining

$16.67

0.6

OI  

Owens-Brockway 3s2015 (144A)   

99.08

3.0

3.3

PkgCnt

$26.73

 NIL

MU  

Micron Technology 1.875s2027   

103.73

1.8

1.6

Semicn

$7.56

 NIL

CCI 

Crown Castle Int. $3.125       

$60.32

5.2

 PFD

TelSrv

$42.88

 NIL

NIHD

NII Holdings 3.125s2012        

100.21

3.1

2.9

TelSrv

$43.50

 NIL

F   

Ford Motor 4.25s2016           

173.29

2.5

 NMF

Aut&Tr

$13.96

 NIL

JRCC

James Rvr Coal 3.125s18 (144A) 

100.27

3.1

3.1

Coal 

$20.77

 NIL

AU  

AngloGold Ashanti $3.00        

49.97

6.0

 PFD

Mining

$42.48

0.4

* Prices as of July 6, 2011

 

Highlighted Convertibles:

Micron Technology manufactures and markets semiconductor components used in the computer, telecommunications, and office automation industries. Its major products include DDR, DDR2 and DDR3 computing DRAM, specialty DRAM, NAND, and CMOS image sensors used in a wide range of electronic applications. In 2010, 83% of total sales were generated from foreign countries.

The company reported weaker-than-expected earnings for its fiscal 2011 third quarter (which ended June 2nd), due to slumping demand for its DRAM computing products and a drop in selling prices for its line of CMOS image sensors. Share net plummeted to $0.07, from last year’s impressive figure of $0.92 a share. However, given its favorable position in the booming mobile devices arena, the company’s overall outlook remains favorable. Its top line should resume growth, albeit at a slower pace, and earnings should begin to expand in fiscal 2012.

Micron Technology’s 1.875% convertible note due 2027 offers more stability than its underlying common, whose inherent risk is above market average. And, because of the hybrid nature of convertibles, the value of the note will be supported by its investment value, even as the convertible trades above par.

Kinross Gold is engaged in the mining and processing of gold and, as a by-product, silver ore. The company also engages in the exploration for and acquisition of gold-bearing properties, the extraction and processing of gold-containing ores, and reclamation of gold mining properties. Its gold production and exploration activities are carried out principally in Canada, the United States, Brazil, Chile, Ecuador, Russia, Ghana, and Mauritania.

The current global economic environment keeps pushing investors into the safety of bonds and precious metals, such as gold. The price of gold has sustained its high level over the past couple of years and demand for the commodity continues to grow. Following an impressive performance in 2010, when profit more than doubled, Kinross Gold followed up with a 42% rise in sales, and a 37.5% increase in earnings in the first quarter of 2011. Still, Value Line has ranked the stock to underperform the broader market in the next six to 12 months. The company’s 1.75% convertible notes due 2028 provide an excellent lower-risk alternative to the stock.

James River Coal engages in mining, processing, and selling of bituminous, steam, and industrial-grade coal in eastern Kentucky and southern Indiana. It conducts mining operations in the Bell County, Bledsoe, Blue Diamond, Leeco, McCoy Elkhorn, and Triad mining complexes. The company sells its coal to electric utilities and industrial customers through three sources: company-operated mines, mines operated by independent contract mine operators, and other third parties from whom it purchases coal for resale.

As of December 31, 2010, James River operated six mining complexes, including 18 underground mines, nine surface mines, and 10 preparation plants. It also controls approximately 271.3 million tons of proven and probable coal reserves in Central Appalachia and the Midwest. In April, James River closed the previously announced acquisition of International Resource Partners LP for $475 million in cash.

After four years of losses, James River turned a profit in 2009 and followed that with an even greater net margin in 2010, when the global economies were first recovering. Unfortunately, things turned sour in the first quarter 2011. Sales of $164.1 million were 10% lower than the same period a year earlier, and results slid back into the red, with the deficit coming in at $0.28 per share. Thus, the Safety rank assigned by Value Line is the lowest and performance over the upcoming six to 12 months is expected to be below average.

James River Coal 3.125% convertible notes due 2018 offer a safe haven for investors bullish on the company and, to some extent, the coal industry. The convertibles provide income, while the common pays no dividend, and, by nature its conversion feature, could realize added value if the common picks up momentum.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.