Stock of the Week
Pimco Corp Opportunity Fund
NYSE symbol: PTY
Industry: Bond fund.
Stock Price as of 12/19: $9.97
There is one constant in this market. The bad news keeps coming and it's only getting worse. Like I said last week, no sugar coating the economic news, it's bad. The one bright spot recently is mortgage rates are coming down. Freddie Mac is offering 5.19% for a 30 year fixed. Some banks are below 5% for less than 30 years and of course good FICO scores. Unless you refinanced at the lows in June of 2003, you seriously need to call your bank and look at refinancing. Even if you have a bad FICO number, it doesn't hurt to call. This is the best advice I can give anyone. If the whole country could refinance their mortgages lower, this could be the best stimulus package THE GOVERNMENT WOULDN'T HAVE TO PAY FOR. In theory, lower mortgage rates should halt the consistent decline in housing prices because individuals can now afford more house at lower rates. Hopefully this will work.
Getting back to the stock market, it's tax season time and everyone has plenty of tax-loss stocks to deal with. I'm not a big fan of going to cash. If you're looking to sell stocks for tax losses, then I would prefer investors look to put the proceeds into other positions like the ETF market. There are ETFs for U.S. indexes, foreign markets, sector funds, commodity, and others ETFs that use leverage on the long side and short side. The leverage ETFs should be for traders and aggressive investors only.
For the income investor, it's getting tougher and tougher. Interest rates are at or near zero, so what is the investor to do? The question has been posed to Bill Gross, the leader and founder of the worlds largest bond fund company, PIMCO. Mr. Gross has said a number of times over the last several months that he is simply buying what the government is buying. So Pimco is buying agency mortgages along with the Treasury and the Fed. Pimco is also buying bank preferred shares along with the Treasury. As Mr. Gross said, we as investors can buy bank preferred shares, trading at similar senior levels as the government preferred, yet while the government is only receiving 5%, we as investors can get 10-14%. The best way to invest in this sector is with Pimco funds. One particular closed end fund I like is the Pimco Corporate Opportunity Fund yielding 15%, but there are plenty of other funds. Blackrock is another great bond company with good funds. The one big asterisk with these closed-end bond funds is leverage. The dividends can be postponed if the funds asset value drops too much thanks to leverage. So far it hasn't been a problem. But in this market, the unthinkable is now thinkable.
For investors looking for growth, I have featured plenty of large cap techs which dominate their industry and have billions in cash verse little or no debt. Stocks like Intel and Google have dropped dramatically, but both have no debt and billions in cash. These two companies will continue to dominate their industry through this tough economic environment and re-emerge stronger than ever on the other side of this downturn.