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TheValue Line Investment Survey reviews and ranks about 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 momentum and earnings momentum. The rank also indicates the 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 as highly ranked. Often such companies will benefit from the industry’s advance and will be trading at a less expensive price point when compared to their more highly ranked brethren. Chesapeake Energy (CHK), 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. Below is a partial list of the convertibles residing in a top-ranked industry.  

<--------Convertibles---------->

<------------Common---------->

Convertible Securities

Price

Curr Yld

Y-to-M

 

Ticker

Price

Yield

Industry

Ford Motor Co 4.25s2036        

197.13

2.2%

 NMF

F   

$17.43

 NIL

Aut&Tr

United Continental (Air) $3.00 

$48.99

6.1%

 PFD

UAL 

$45.92

 NIL

AirTrn

Cincinnati Bell(Brdwng) $3.375 

$48.31

7.0%

 PFD

CBB 

$3.71

 NIL

TelSrv

Chesapeake Energy 2.5s2037 (I) 

102.82

2.4%

2.3%

CHK 

$25.65

1.4%

NtGsDv

Helix Energy Sol 3.25s2032     

131.60

2.5%

1.2%

HLX 

$25.56

 NIL

OlfdSv

Meritor (ArvinMeritor) 4s2027  

105.72

3.8%

3.4%

MTOR

$13.67

 NIL

CarOEM

Owens-Brockway 3s2015 (144A)   

101.21

3.0%

1.5%

OI  

$30.71

 NIL

PkgCnt

* Prices as of August 14, 2014

Highlighted Convertibles:

Chesapeake Energy is an independent oil and natural gas exploration and production company. It operates primarily in the mid-continent region with expanding positions in South Texas, Permian Basin, Appalachian Basin, Barnett Shale, and Arkansas /Louisiana/Texas border area. In 2013, the company produced 1,095 bcf of natural gas; 41mmbbl of oil; 21 mmbbl of natural gas and oil equivalents.   

As Chesapeake focus on becoming a leaner, more manageable entity, it continues to shed non-core assets. This action will likely affect sales in the near term, but it will also reduce the company’s debt burden. Meanwhile, capital expenditures are being slashed, and production is expected to be relatively robust.  The shares are timely and the company is heading in the right direction. Hence, Value Line sees healthy earnings growth and solid capital appreciation over the 2017-2019 pull.   

Chesapeake has a number of outstanding convertible debt, with current yields and yields to maturity that are much higher than the dividend yield from the common stock. Furthermore, they are favorably leveraged to participate in the common’s activity. 

United Continental Airlines, formerly UAL Corp., wholly owns United Air Lines, Inc. and Continental Airlines, Inc. It also operates under contract three regional express and connection carriers, flying more than 5,500 flights daily to more than 375 U.S. domestic and international destinations.   

UAL saw a turnaround in business in the second quarter, following a lackluster first quarter which was plagued by a long, harsh winter that caused thousands of cancellations. For the second quarter, the company earned a profit of $2.34 a share, compared to a loss of $1.35 in the first quarter, and $1.80 in the second quarter of 2013. 

The convertible preferred offers a generous current yield advantage over the dividendless common stock, and positive leverage in the activity of the common stock. 

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