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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. Ryland Group (RYL), 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. 

 

<----------Convertible----------->

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

Convertible Securities

Price

Cv Yld (%)

YTM(%)

Price

Yld(%)

Ticker

Industry

Omnicare 3.25s2035 (OCR)       

99.88

3.3

3.3

$46.75

0.3

OCR 

DrugSt

United Continental (Air) $3.00 

$48.00

6.3

 PFD

$32.66

 NIL

UAL 

AirTrn

Ryland Group 0.25s2019         

91.62

0.3

1.7

$42.95

0.3

RYL 

HmeBld

Headwaters 2.5s2014            

98.01

2.6

5.7

$10.23

 NIL

HW  

Power

AAR Corp. 2.25s2016 B          

94.50

2.4

4.5

$21.68

1.4

AIR 

Aerosp

* Prices as of June 14, 2013

Highlighted Convertibles:

The Ryland Group

The Ryland Group specializes in the on-site construction and sale of single-family attached and detached homes. The company also provides mortgage services to customers through its wholly-owned subsidiary, Ryland Mortgage Company. The Homebuilding operations accounted for 97% of total revenue in 2012.

With the Housing industry in the U.S. on the rise, again, RYL recorded sales of $374.7 million, a 74% increase year over year, and a $0.43-a-share profit for its operations in the first quarter of the year, recovering from a loss of $0.07 in the like period a year earlier. And Value Line believes capital gains appreciation over the pull to 2016-2018 is above average, but volatility is of major concern.

The convertible, with a yield to maturity of 1.6%, is far less volatile than the underlying common. Furthermore, it is favorably leveraged to share in as much as 40% of any gains, but fall only 30% on equal moves in either direction in the common.

United Continental Airlines

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.

Share earnings ($1.59) for 2012 were less than half the figure ($3.49) of 2011. For the first quarter of 2013, the company reported another loss (the second consecutive one) of $0.98 a share. But Value Line anticipates top- and bottom-line improvement both this year and next. The recent run up in the stock price, however, discounts long-term appreciation potential. Moreover, the company’s weak financial position and high volatility may deter many investors.

For the risk-averse investor, the less volatile convertible preferred offers dividends and a current yield of about 6.3%.


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