This blog is almost exclusively focused on trading based on technical patterns. However, occasionally I do look elsewhere for profits. Fore example, right now I believe there is tremendous opportunity in the preferred market.
Financial companies have been beaten down as everyone who has even glimpsed at CNBC knows. What you may not have heard is that companies such as Fannie Mae, Freddie Mac, Bank of America, CIT Group and others have been recently issuing preferred stock to raise capital. The whole "everything financial related is going to zero" mess has made it so that these preferreds and all fixed income instruments issued by these companies have had to offer high yields, priced way off benchmark treasuries in order to entice investors.
Most of the companies I mentioned have outstanding preferred yielding around 7.25% whether by way of a coupon or by discount and coupon. Of course if you wanted to venture into Countrywide preferred you could get a few percentage points more in accordance with the additional risk you would face.
As far as credit ratings, all are generally highly rated investment grade securities. Remember, for these securities to not pay out, the companies mentioned would have to fully cut their common stock dividend which is not likely to happen.
Overall, preferreds are a terrific way to play the financial meltdown. With things looking a bit more positive in recent weeks, the record spread betwee treasuries and preferreds now looks to be overdone. The fat yields, in combination with the prospect of price appreciation as financials improve makes this "trade" a great way to profit.
