Savings Experiment: Snow Removal
The Money Man Behind Rick Santorum: Who Is Foster S. Friess?This post is part of a special annual report -- Top Stock Picks '09 -- in which TheStockAdvisors.com asked 75 leading newsletter advisors to select their favorite investment for the new year.
"My top pick is US Cellular 8.75% Senior Notes (NYSE: UZG)," says Carla Pasternak. In her income-oriented advisory service, High-Yield Investing, she says, "The best thing about them? They are bonds, but trade like stocks."
Pasternak explains, "Their total interest payments of $2.1875 a year dished out quarterly are legal obligations, not discretionary payments like stock dividends.
"As senior notes, too, investors can rest assured that UZG's interest payments have a prior claim on the company's assets, ahead of any common or preferred share dividends, if the issuing company were to run into trouble.
"Not that I consider it likely United States Cellular (NYSE: USM), America's sixth-largest wireless firm and the name behind these bonds, is any danger.
"In fact, credit rating agency Standard & Poor's is so confident in this firm's financial position, it just upgraded the company's credit quality to an investment-grade BBB- with positive outlook, meaning the rating could be raised in one to three years.
"The upgrade and positive outlook mean that any such bonds the company may issue in the future will most likely offer a lower interest rate than what these notes are paying. That's because UZG was issued in 2002, when the company was considered higher risk and needed to offer a higher rate in return.
"The notes can be redeemed by the company at $25 each at any time, but that's a perk given that they're still selling for far less than that today.
"For six years since their issue in late 2002, the notes traded between $25 and $29 a piece. They fell below that range for the first time in September 2008 as investors grew increasingly risk averse.
"While it's hard to predict prices in these markets, the fixed interest payment combined with a set maturity date could help put a floor on the trading price. In any case, the notes mature on November 1, 2032, at which time the $25 principal value will be returned to investors.
"For income investors willing to take a moderate degree of risk, I think UZG should perform admirably in 2009 while paying a double-digit yield at current prices."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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