Published:
October 20, 2008
Seizing the opportunity to profit from the downdraft in GE's
stock, billionaire investor Warren Buffett scooped up $3 billion
of its preferred shares and warrants to buy $3 billion worth of
stock at a discounted price. "GE is the symbol of American
business to the world," he said. "I am confident that GE will
continue to be successful in the years to come."
Investors that share Buffett's sentiment and are looking
for more stable income investments may want to take a look at General Electric Capital 6.625% PINES due 6/28/2032 (NYSE:
GEA, $22.30). GEA is a PET (Preferred Equity Traded) bond.
PET bonds are one of the most overlooked investments in the
income universe. They emerged over the past decade to make bonds
easy to access for income investors. They're simply corporate
bonds packaged into affordable $25 units. They have a ticker
symbol, and you can buy and sell them like stock throughout the
trading day. Most of them trade on the New York Stock Exchange
where their prices are publicly quoted.
GEA
pays $1.66 annually per note,
offering a yield of nearly 8%
($1.66/$22.30). Although that's
not quite as impressive as the
10% yield Buffett managed to
strike on his equivalent GE
preferred stock, it's still
robust. And remember, most of us
aren't betting $3 billion on GE
either.
The notes are issued by GE Capital, the loan and lease unit,
which provides about half of GE's income. The notes took a
beating when GE's CEO Jeff Immelt warned that credit-related
losses are affecting GE Capital's profitability. |
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Still, the unit will turn a profit, making $2 billion this
quarter in a tough market. The parent company also remains
profitable, forecasting $1.95 to $2.10 per share this year, from
its prior forecast of $2.20 to $2.30 per share. Meanwhile, debt
ratings agencies Standard & Poor's and Moody's affirmed their
highest Triple-"A" credit ratings for both GE and GE Capital.
Buffett's investment lends a lifeline to GE, making it less
reliant on the troubled credit markets to keep its business
going. But it will take time for the company to return its
former growth rates and win back investor confidence. As such,
we expect securities like GEA to be volatile for some time, even
while they continue to provide a secure income stream.
Although the notes rallied on the Buffett news, they're still
selling at a discount to the $25 issue price. We see this as an
entry opportunity for investors looking for relatively safe
income in a turbulent market.
Carla Pasternak
Editor
High-Yield
Investing
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Carla has been employed in the investment industry for more than two decades.
In addition to her work as a writer for several nationally recognized financial
publishers, her previous experience includes a position as president of a
well-respected investor relations firm. She has also been writing shareholder
reports for public companies since 1980.
A highly successful investment analyst, Carla specializes in high-yield,
income-paying stocks. In that pursuit, she's always mindful to select companies
that not only pay rich dividends, but that also deliver strong long-term capital
gains. Furthermore, Carla's experience in writing SEC filings gives her the
added insight required for her to truly understand a company's current and
future financial health.
On the educational front, Carla holds BA, MA, MBA and Ph.D. degrees. When
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