Friday, July 18, 2008

Preferred Stocks: Anything But Dull

I had to smile when I came across this 2002 article from Forbes titled "Dull is Good: Preferred Stocks". As the charts for two preferred stock ETFs above depict, preferred stocks have been anything but dull in recent weeks.

The reason for this, as Index Universe points out, is that the majority of preferred shares are issued by companies in the financial sector. As the banks and other financial issues have cratered and then bounced sharply higher, their preferred shares have followed suit. The charts for PFF (PowerShares Financial Preferred Portfolio ETF; top chart) and PGF (iShares S&P U.S. Preferred Stock Index Fund ETF; bottom chart) show a considerable volume spike in recent sessions, as investors have questioned the viability of banks and worried about associated risks of default.

Among the top holdings for PFF are preferred shares in Ford Motor, Citigroup, Countrywide, and J.P. Morgan Chase. Among top holdings for PGF are preferred shares in Barclays, Citigroup, Credit Suisse, Merrill Lynch, and Wachovia. If investors thought those preferred dividends were secure, we'd see a lot less volatility in those shares than in the common stock. When preferred shares fall 25% in a matter of days, we're either seeing the buying opportunity of a lifetime or an efficient market pricing in worse things to come for these companies.


procol said...

I watch this class of stock and can tell you they are anything but dull as you can see,

I suspect they trade as hedges for the Credit default swaps and bond guys.

In any case , they are a wild bunch.

M1 said...

I suggest also watching stocks such as JSN and JPZ paying large dividends. They both went public a few years ago at $20 and paying around 8% I remember...but ifpublic has bought to PROTECT money, it hasnt done good job of that unless you bought around $14.

I think Dow is headed for 11,700 at least as it broke out this week....IF consolidation are holds....

That said First BAMM day of rally 80% upside volume, Thursday 200 pts BAMMM only 70%, and I looked just now it was near 60% today and the NAZ had 61% down volume...diverging from mkt...GOOG and MSFT both got hit and stayed weak all day

Well it looks like we can rally when JPM earnings fall 50% along with C and its was exciting because they beat estimates....I thought that game was gone?

Duratek ('s the only time I'll leave my site info...nice site here

Brett Steenbarger, Ph.D. said...

Thanks for the link, M1.