Loading...

The Value Line Investment Survey reviews and ranks almost 100 industries weekly, based on the average Timeliness rank of all stocks within an industry for that week. The assigned ranks indicate expected performance of 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. The rank also indicates an individual stock’s expected price performance over the next six to 12 months.

Some investors prefer to focus on just the highest-ranked companies from the highest-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 companies that are not highly ranked. Often, such companies will benefit from the industry’s advance and will be trading at a less expensive price point when compared with their more highly ranked brethren. Central European Media (CETV), National Healthcare (NHC), and United Continental Airlines (UAL) are 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 companies. Below is a partial list of the convertibles whose underlying company is not highly ranked despite residing in a top-ranked industry.

 

Recent

Conv

Com

Com

Com

Convertible Securities

Price

Yld(%)

Price

Yld(%)

Ticker

Exch

Industry

United Continental (Air) $3.00 

$35.16

8.5

$21.52

 NIL

UAL 

N

Air Transportation

Tenet Healthcare $70.00 (Mand.)

$871.62

8.0

$5.35

 NIL

THC 

N

Medical Services

McMoRan Exploration $57.50     

$750.13

7.7

$9.16

 NIL

MMR 

N

Petroleum(Integrated)

Geomet $0.80 A                 

$12.00

6.7

$0.51

 NIL

GMET

O

Petroleum(Producing)

HEALTHSOUTH $65.00 A           

$1,015.60

6.4

$20.67

 NIL

HLS 

N

Medical Services

Central European Media 5s2015  

81.17

6.2

$7.29

 NIL

CETV

O

Cable TV

Delta Petroleum 3.75s2037      

67.33

5.6

$3.51

 NIL

DPTR

O

Petroleum(Producing)

National Healthcare $0.08 A    

$14.57

5.5

$45.19

2.5

NHC 

A

Medical Services

Alon USA Energy $0.85 A        

$15.63

5.4

$9.20

1.7

ALJ 

N

Petroleum(Integrated)

McMoRan Exploration $80.00     

$1,470.73

5.4

$9.16

 NIL

MMR 

N

Petroleum(Integrated)

* Prices as of April 12, 2012

 

Highlighted Convertibles:

Central European Media Enterprises Limited engages in broadcasting, Internet, and Television content businesses in Central and Eastern European countries. It operates  over 20 television channels in markets including Bulgaria, Croatia, the Czech Republic, Romania, the Slovak Republic; and Slovenia. It has about 4,400 employees and 5,400 stockholders.

The company has not turned a profit since 2007, although losses have been lower in recent years. The stock is expected to match market performance over the upcoming six to 12 months, it does not pay dividends, and its volatility is well above the equity markets (with a Beta of 2.05). Still, the company’s 5% convertible note due 2015 offers income at a reduced risk level.

In addition to its lower volatility (about half that of the common), the note has a current yield of 6.2% and its yield to maturity was 11.6% as of April 12, 2012.

National Healthcare operates long-term healthcare centers with associated assisted living centers, and independent living centers, primarily in the southeastern United States. It provides sub-acute skilled and intermediate nursing and rehabilitative care, and various services including senior living, home healthcare, hospice, financial, and insurance. The company also operates specialized care units in its healthcare centers, such as Alzheimer's disease care units, sub-acute nursing units, and in-house pharmacies. In addition, it provides insurance services, and management and accounting services, as well as leases properties to owners of long-term healthcare centers. As of February 16, 2012, it had 75 long-term healthcare centers with 9,456 beds; leased/owned or managed 17 assisted communities; and employed 12,670 people.

In 2011, operating revenue increased 7.3% to $77,537,000. Net income to shareholders was $55,401,000 (or $4.02 per share), compared to $44,022,000 (or $3.22 per share) for the year ended December 31, 2010. Common dividends were increased to $1.16 a share (2.7%) in 2011, from $1.08 in 2010.

The stock of this financially sound company is considered a safe bet by The Value Line Investment Survey. However, the company’s $0.08 Series A convertible preferred stock offers more stability and greater income. The convertible preferred currently yields 5.5% and is not callable before January 1, 2015. The liquidation value is $15.00 per share.

United Continental Holdings wholly owns United Air Lines, Inc. and Continental Airlines, Inc. It also operates, under contract, three regional express and connection carriers and premium transcontinental service. The company owns 366 aircraft and leases another 896. It acquired Continental Airlines in 2010, and employs about 86,000.

UAL posted lackluster full-year 2011 results, but Value Line expects improvements in both top and bottom lines in 2012 and 2013. With the integration of Continental nearing completion, the company expects to realize most of the merger benefits in 2012, and Value Line sees wide appreciation potential over the next three to five years. Still, the volatility of the stock is above average, and it pays no dividends. Investors, however, could be better served through the company’s 6% convertible preferred shares.

The preferred is half as volatile as the common shares, has an 8.5% current yield, and is currently callable at $50.00.

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