The bond market has been following this exact script. Quantitative easing and the Federal Reserve's $85 billion monthly bond-buying spree made investors feel safe. They intellectually knew interest rates were artificially low, but they still felt safe. Plus, all that liquidity has helped thrust equity markets to lofty heights.
Bond fund investors of all sizes were convinced in May and June that the selloff was the start of something big. Fed Chairman Ben Bernanke's taper talk drove everyone to the exits. The plot had changed–rates were rising.
False. Bernanke retrenched as the regional Fed presidents mollified bond wonks with a rewrite. The Fed's head-fake has created a bond-buying opportunity.
USG Corp. has a blemished past. The company was in and out of Chapter 11 twice. But there is a new USG. Its management has cut expenses, developed new products and restored the company to profitability.
USG has three core businesses: housing, commercial real estate and repair and remodeling. Products include gypsum wallboard, ceilings, ceiling tiles and ceiling-suspension systems. The average age of homes and commercial buildings in the U.S. is nearly 40 years. That's good news for USG. Sales and margins in the latest quarter rose across the three core businesses. Gypsum sales jumped 21% from a year ago, as wallboard prices increased 16%. Ceiling sales increased 6%. Meanwhile, USG's liquid assets are strong at $846 million.
For investors worried about higher rates, buy the short-dated USG Corp. 6.30% Noncallable Bonds Due Nov. 15, 2016 (CUSIP: 903293AR9) at 104.50 for a 4.8% yield to maturity. These B- rated bonds may be "junk," but the corporate turnaround is well under way. Expect rating upgrades.
Investors would have to be living in a cave not to notice the energy sector's transformation. If you look at all the industries that feed into North America's growing energy industry, there are some gems for the plucking. One such gem is CHC Helicopter. This privately held Canadian company is a workhorse for the oil and gas industry. Headquartered in Vancouver, B.C., CHC operates more than 250 aircraft in 30 countries, transporting provisions and people and mounting rescue operations to offshore oil and gas platforms.
Fourth-quarter revenue was $439 million, down slightly, but earnings before interest, taxes, depreciation, amortization and aircraft rental costs were up 23%. Contracts average four to five years, and new contracts are up. Liquidity is good: $360 million between cash and its revolving line of credit. If you want yield, buy CHC Helicopter Senior Secured First Lien Notes 9.25% Due Oct. 15, 2020 (CUSIP: 12545DAB4) rated B+. If you pay 104.50, you get 8.16% to the 2018 call or 8.40% to maturity.
Now rewind back to the giddy days when fat cat founder Gary Winnick's Global Crossing telecom company was a high-tech darling. Most investors lost money but not Winnick. Global Crossing filed for bankruptcy in 2002.
Fast-forward to 2011: Level 3 Communications Level 3 Communications acquired Global Crossing. Level 3 Communications is a broad-based provider of Internet protocol, video, data and voice services for many of the Internet carriers in North and Latin America and Europe.
Level 3′s balance sheet is a work in progress. The latest financial statement shows approximately $600 million in cash. Adjusted earnings rose 12% to $387 million, excluding severance charges. The company should be profitable in 2014 as revenues increase and margins expand.
Top 10 Financial Stocks To Own For 2014
For aggressive investors buy Level 3 Finance Senior Notes 9.375% Due Apr. 1, 2019 (CUSIP: 527298AR4) callable Apr. 1, 2015 and thereafter. Buy at 111.25 for a yield of 4.9% to a call in 2015 at 104.68.
Marilyn Cohen is president of Envision Capital Managment, Inc., a Los Angeles fixed-income money manager. For more visit www.forbes.com/cohen.
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