|
Published: September 29, 2009
The market’s rally so far this year has given
way to a flood of profits for investors. Since early March, the
Dow is up more than +49%. But starting today, you can begin
cashing in even larger gains using the stock market “Trump
Card,” which can guarantee you at least triple your money.
But first, there’s a catch...
These “Trump Cards” aren’t traded very often. And you can’t find
them on an exchange. That’s what makes them so lucrative. You
see, it’s this lack of liquidity that makes these high-yield
bonds, as they’re called, double and even triple overnight.
Once you get past the sometimes-frustrating volume issue, you’ll
find many advantages high-yield bonds use to trump regular
stocks.
First, there is the time element. You can hold a stock
indefinitely, as long as the company stays in business. Bonds,
however, mature at a certain date. They can even be called away.
But unlike options, bonds use time to work in their favor. The
closer to maturity date, the better. Time adds an extra benefit,
because once it runs out, investors get paid.
Bonds are also higher on the importance scale for a company.
Even if the unfathomable occurs and the issuing company
liquidates, bondholders are paid first. Next come preferred
stockholders and finally common stockholders.
The most important advantage
bonds have over stocks is their
guaranteed value. Stocks are bought
and sold with a constant moving
target. Each investor has his or her
own target value. Bonds, however,
have a face value. That face value,
usually $1,000, is the price those
holders will receive at maturity.
This gives us a clear picture of
what our investment will pay us. It
can also give us a guaranteed double
or triple.
Say you buy a corporate bond with a
face value of $1,000 and a maturity
date of August 2011. Instead of
paying the full $1,000, you’ll
oftentimes receive a hefty discount.
Let’s say in this case, the bonds
are trading at around $330. That’s a
guaranteed triple as long as the
company doesn’t go insolvent.
Here’s why the guarantee is so
important. Even if the company does
go belly up, every asset sold will
be used to pay you. Common
shareholders might receive a few
dollars of whatever is left in the
end. But you are paid first.
Don’t want to wait until 2011 to
have your payday? No problem. Just
trade it in early. That’s an equally
lucrative choice.
Clear Channel Communication's 7.25%
Oct. 2007 Bond is up almost +200% in
just five months. Instead of waiting
until October 2027 for a +614%
payday, investors on this bond
could’ve cashed out today for a
5-month +186% gain. It’s easy enough
to flip that gain into other fast
moving high-yield bonds.
To get you started, here are two of
the top traded bonds:
* Realogy Corp 10.5% Coupon
Maturing Apr. 2014 (CUSIP:
75605EAT7)
* Clear Channel Communications
10.75% Coupon Maturing Aug. 2016 (CUSIP:
184502BB7)
Note: Be careful trading these.
Corporate bonds can be extremely
volatile.
The coupon rate is the original
yield based on the $1,000 face
value. This is also a large selling
point for income investors as the
yield becomes inflated with lower
prices.
The CUSIP is the equivalent of a
stock’s ticker symbol. Although,
instead of using it to place orders
on an exchange like stocks, the
CUSIP is used for bond traders to
quickly identify each particular
issue.
To find your own high-yield bonds,
you can check out any free bond
screener such as Yahoo! Finance.
Just enter the criteria you are
looking for -- like coupon rate,
maturity date, and credit rating --
and scan through the results until
you find one you like. -- Jim
Nelson
Managing Editor
Penny
Sleuth Editor's Note: This
article originally appeared in
Penny Sleuth. |
