Finally got my entry price into Fallen Angel Bed, Bath, and Beyond.
music selection: “I Am The Walrus” — The Beatles
Fallen Angels are companies that get downgraded from investment grade to junk. I outlined the opportunity in Bed, Bath, and Beyond (BBBY) in March. The company is in the midst of a turnaround that is sure to send their bonds back to par in the next 24 months. The great thing about the bonds of these Fallen Angels is there is forced selling. Many institutional bond holders (most bonds are held by institutions) become legally obligated to sell when their holdings get downgraded. This forced selling creates some irrationally low pricing. That is your buying opportunity!
I have had a Good Til Canceled order open on CUSIP 075896AB6 since late march at 76.0000 cents on the dollar. On 21MAY2019 my order filled and I became the proud owner of 9 units of the 4.915 coupon 1AUG2034 maturity BBBY bonds. Held to maturity, this bond has an annualized yield to maturity of 8.54%. That is a fair priced to be paid to wait for capital gains as the turnaround story plays out. If the turnaround sends the bonds back to par in 24 months as projected, the annualized return jumps to 22.17%. That is better than being an equity investor 99% of the time and comes with reduced risk. This is how I increasingly want my portfolio to be invested as I can find these opportunities. And there will be plenty of opportunities when the credit cycle finally turns (it always turns – it is called the Business Cycle).
ACTION TO TAKE: Buy CUSIP 075896AB6 up to 76.0000 cents on the dollar. Sell when the bond returns to par.
Devour your prey raptors!