Over the weekend, I was doing some screens and found [[CMO]]. With the word “mortgage” in the company name, one would think the stock would be getting killed. But, it is thriving.
Plain and simple, 99% of CMO‘s holdings are Gov’t agency bonds. As rates go lower and the spreads widen, they bank even more coin.
Also, because they have REIT status, the company will pass the extra coin to you (leech investor).
During the last rate cut cycle, CMO went from $8-34, while paying off loads of dividends.
Barring armageddon, CMO can be an interesting play, as rates drop.
Over the next week, I will highlight stocks on my radar, in order to help you understand how men with greater intelligence operate.
Viz.
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next thing you know you will want us to call you “Maestro” – Master Fly. Long SKF, QID, FXP, GLD, GDX. Any more good ideas?
Call me Senor Tropicana.
CMO is interesting. During the last two weeks of December, I moved 90% of my money into DHG. It’s a closed end fund that is a portfolio of corporate bonds. When I bought, it was trading at a 20% discount to NAV and yields 11%. They make monthly payouts. And because it’s highly diversifed, if any single company blows up it won’t destroy you. You should also get some appreciation if interest rates decline faster than credit spreads blow out, but nothing like going from $8-$34.
I’m going to hide out in DHG until the infrastructure, ag, fertilizers, industrials, healthcare and cosumer staple stocks crack and join the rest of the market that’s already down 25%-30%.
I think Maestro is for Greenspan.
I want to be known in the future as “il duce.”
I like this idea fly, thanks.
folks, anybody thinking about lightening up on FXP/SKF down here?
Fuck you. No.
I’ve got a trading bug up my ass. My gut is telling me tomorrow should be an up day (I think someone mentioned this here too). I figure lighten up today, rebuy tomorrow afternoon.
Shoat LIMM.
Possiber new position for LIMM rongs:
“Glab yo ankers.”
People keep dumping MVIS at 4.20. What, Mary Jane is not “in” anymore?
Assume dah position, Sweah’n’gn!!
First you got to get mad boys.
http://www.youtube.com/watch?v=dib2-HBsF08
Pudfucker, I assume you know this, but DHG does not invest strictly in senior corporate loans. That is only the income producing portion of the portfolio.
The fund combines that with a long / short strategy, buying low p/e stocks while shorting high p/e stocks, based on Dreman’s value investing methodology.
Meant to provide current income and long term capital appreciation while reducing market volatility.
I would expect to see the price / NAV spread close in the year ahead… and I can deal with 10% yield while I wait.
TravelinLight:
Yeah, I knew about the long/short part of the strategy. I should have included that as part of my post. I didn’t intend to mislead anyone by not mentioning it.
I was only trying to make the point that the well diversified corporate bond portfolio should limit risk and at the same time provide a decent, not great, return. I think an annualized 10% to 11% gain is going to be a huge win between now and June.
With DHG, you earn almost 11% while waiting for the discount to NAV to narrow; and if long rates decline and credit spreads don’t widen further, you should also get decent appreciation. And buying now, you are putting the trade on after high yield credit spreads have already blown out to about 500bps over treasurys, a level not seen in like 4 years or so, which should limit principal risk.
Seems like a low risk trade that will produce decent yield at the very least. And if things go right, it will produce some appreciation as well.
Have you looked at HCD?
CMO looks interesting to me. I want to look into it some more, but it looks like it trades at about 6.5 times forward earnings. Not bad. Plus 7% dividend? One major concern is how highly leveraged this company is; 97% Debt to Capital Ratio??? I hope they know what they are doing.