Bond Picks Updated Nov 24

Best Corporate Bonds To Buy 2020


BondSavvy just 'green-lighted' four new corporate bond investment recommendations to our subscribers during The Bondcast.  We preview these bond recommendations in this fixed income blog post, which includes a summary of each recommendation at the end of the article.

BondSavvy makes bond recommendations after quarterly earnings releases and when we see opportunities present themselves during the year.  One of the many benefits of investing throughout the year – as opposed to building a bond ladder and investing a substantial sum all at once – is that investors can take advantage of situations that arise over time.

Given market conditions, the financial performance of companies, and the shape of the overall economy, our investment themes change.  Based on these and other investment considerations, we may favor particular industries, corporate bonds of varying maturity dates, and corporate bonds across a range of credit quality.

To begin each edition of The Bondcast, we review the overarching investment themes informing our recommendations.  For our September 23, 2020 recommendations, these investment themes included the following:

  • Investment Theme 1: COVID-19 and declines in many commodity prices forced companies to re-tool their businesses
     
    We believe, in many cases, this has positioned companies better for future success, as they had to adapt to a new environment and become more efficient and nimble organizations.  While two of the issuers of our recommended bonds were negatively impacted by COVID-19, their balance sheets remain strong and, given the strength of their underlying businesses, we believe the COVID-19 pandemic will make them better companies for the long term. 

    The issuer of one of our recommended bonds is a large natural gas producer.  As a result of low natural gas prices, this company's main drilling area has 75% fewer rigs than it had in 2014, but the area now produces twice the amount of gas it did in 2014.  These efficiency improvements were occurring long before 2020; however, we believe COVID-19 has further accelerated the efficiency of this and many other companies.

  • Investment Theme 2: We have increased our industry diversification

    We added a new recommendation in the pharmaceutical industry and two new recommendations in the natural resources industry. Across our existing buy and hold recommendations, we have bond issuers in 12 different industry groups.

  • BondSavvy Subscriber Benefit
    BondSavvy Subscriber Benefit
    BondSavvy provides recommendations across a variety of industries, credit quality, and maturity dates. Our subscribers make the final investment decision based on their risk tolerance and returns objectives. Get Started  
  • Investment Theme 3: The issuers of each recommended corporate bond have leverage ratios not exceeding 2.7x

    The US and global economies are far from being out of the woods. We see this in the recent quarterly results released by companies across myriad industries. While some companies have been buoyed by COVID-19, many more have struggled and have a long road to recovery. Our bond issuers reported leverage ratios for the periods ending June 30, 2020 of 2.7x and less. These low leverage ratios enable our bond issuers to successfully absorb further shocks to their businesses should the economy take a long time to recover.
  • Investment Theme 4: None of our recommended corporate bonds are callable prior to the maturity date

    Certain of our previous corporate bond recommendations are subject to call schedules, which have the effect of limiting the upside of a corporate bond. Bonds rated below investment grade (often known as 'high-yield corporate bonds') generally have call schedules, whereas investment-grade corporate bonds do not. Selecting corporate bonds that are not callable at the issuer's discretion helps maximize the potential returns of our recommended corporate bonds.

  • Investment Theme 5: None of the issuing companies of our recommended bonds have any material debt that is senior to our recommended corporate bonds

    While corporate bonds are senior to stockholders, they are junior claims vs. senior bank debt. This means that, in the case of a restructuring or Chapter 11 filing, the senior bank debt has priority to claims, which can result in less-than-full recoveries for unsecured bondholders. All of the recommended bond issuers have access to senior bank facilities; however, with one minor exception, these credit facilities were undrawn at the end of the second quarter 2020.

  • BondSavvy Subscriber Benefit
    BondSavvy Subscriber Benefit
    Our investment analysis shows subscribers where our recommended bonds stand in the issuer's capital structure to assess the downside risk of our corporate bond investments. Get Started  
  • Investment Theme 6: We have added new investment-grade corporate bonds, Fallen Angels, and split-rated corporate bonds

    Our goal is to maximize the total return of each corporate bond we recommend. Given the rally in US Treasurys and the shrinking of certain corporate bond credit spreads, many of our previously recommended investment-grade corporate bonds increased significantly in value. To secure the capital appreciation of these bonds, we sold many of these bonds prior to maturity. As a result, prior to our September 23, 2020 bond recommendations, we only had a select number of recommended bonds rated investment grade.

    Since prices of investment-grade corporate bonds and high-yield corporate bonds behave differently, it's generally a good idea to have bonds of both bond ratings in an investor's portfolio. This has become more difficult in recent months due to the run-up in Treasury bonds and, as a result, in many investment-grade corporate bonds. In the September 23, 2020 edition of The Bondcast, however, we were able to find corporate bonds rated investment-grade, as well as bonds that are split rated that are trading at compelling relative values.
As we evaluated various corporate bond investment opportunities, we kept these six investment themes in mind. This resulted in BondSavvy recommending four corporate bonds, which we summarize below.  Subscribe to BondSavvy to see the specific bonds (along with their CUSIP numbers) we recommended, our rationale for each investment, and key financial and operating information on each bond issuer.  Watch our sample editionof The Bondcast to see all that is included in our corporate bond investment presentations.

Summary of BondSavvy's Corporate Bond Recommendations - September 23, 2020




Industry
      Offer
Price
     
YTM
    Leverage
Ratio



Bond Recommendation 1          
Manufacturing  
110.76

 
4.62%

 
2.3x



Bond Recommendation 2
Natural Resources  
94.24

 
5.20%

 
2.3x



Bond Recommendation 3
Pharmaceuticals  
95.94

 
3.01%

 
0.4x



Bond Recommendation 4
Natural Resources  
91.60

 
5.35%

 
2.7x





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Leave a Comment

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james commented on 27-Sep-2020
Just four bond recommendations makes for a highly concentrated investment. How often is the service recommending new bonds, and what percent is investment grade? I like the concept of BondSavvy however the performance has been mixed
steve commented on 27-Sep-2020
James, we made 17 new recommendations between March 26 and September 23, 2020. As of today, we have 38 recommendations rated either buy or hold. The four previewed recommendations are just for this edition of The Bondcast, a subscriber webcast we hold after quarterly earnings. You can see the mix of investment grade vs. high yield by clicking the "Returns" tab.

Through Sept 30 2020, 73% of our picks had beaten their benchmark bond ETF.
anonymous commented on 08-Nov-2020
Do you have a sample of your recommendations that I could review.
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