5 Bonds To Consider Buying On A Pullback

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 |  Includes: CLF, JBL, MT, QEP, STZ
by: The Financial Lexicon

In "Prepare For The Possibility Of Much Higher Bond Spreads," I discussed how high and how quickly non-investment grade corporate bonds spreads could rise. I also noted that now is the time to prepare a list of bonds to buy should spreads widen in reaction to the Fiscal Cliff, the possibility of a forthcoming recession, an escalation of tensions in the Middle East, or another episode of bond market woes in Italy and Spain. I would like to follow up that article by helping readers build that watch list of bonds to buy.

The greatest widening in corporate bond spreads typically occurs in high-yield bonds or bonds that have investment grade ratings but trade as if they are junk rated. Additionally, in today's low-interest-rate environment, the double-B to triple-B ratings range is the place that, from a credit quality and yield perspective, I think investors can get the most bang for their buck on the next market-wide pullback.

With that in mind, what follows are the details of five corporate bonds maturing between 2018 and 2023. Four have ratings of Ba1/BB+ (highest non-investment grade rating) and one has an investment grade rating but is trading as if it is junk rated.

ArcelorMittal's (NYSE:MT) senior unsecured note (CUSIP: 03938LAF1) maturing 6/1/2018 has a 6.125% coupon and is asking 99.35 cents on the dollar (6.265% yield-to-maturity before commissions). It pays interest semi-annually, has a make whole call, and a conditional call for tax law changes. Moody's currently rates the note Ba1; S&P rates it BB+.

Jabil Circuit's (NYSE:JBL) senior unsecured note (CUSIP: 466313AG8) maturing 9/15/2022 has a 4.70% coupon and is asking 100.498 cents on the dollar (4.634% yield-to-maturity before commissions). It has a make whole call and pays interest semi-annually. Moody's currently rates the note Ba1; S&P rates it BB+.

Constellation Brands' (NYSE:STZ) senior unsecured note (CUSIP: 21036PAJ7) maturing 3/1/2023 has a 4.625% coupon and is asking 101.858 cents on the dollar (4.397% yield-to-maturity before commissions). It has a make whole call and pays interest semi-annually. Moody's currently rates the note Ba1; S&P rates it BB+.

QEP Resources' (NYSE:QEP) senior unsecured note (CUSIP: 74733VAB6) maturing 10/1/2022 has a 5.375% coupon and is asking 104.50 cents on the dollar (4.785% yield-to-call before commissions). It pays interest semi-annually, has a make whole call, and is continuously callable at par beginning 7/1/2022. Moody's currently rates the note Ba1; S&P rates it BB+.

Cliffs Natural Resources' (NYSE:CLF) senior unsecured note (CUSIP: 18683KAB7) maturing 10/1/2020 has a 4.80% coupon and is asking 99.806 cents on the dollar (4.829% yield-to-maturity before commissions). It has a make whole call and pays interest semi-annually. Moody's currently rates the note Baa3; S&P rates it BBB-.

Please be aware that prices in the over-the-counter U.S. bond market may vary depending on the broker you use. The current prices may also differ greatly from those listed at the time this article was written. For more information on any of these notes, including additional call or put features, please contact your broker or read the indenture.

Also, please do your own due diligence on the financial profiles of the companies mentioned in this article. Only you can determine if taking the counterparty risk of purchasing individual bonds is suitable for you.

Disclosure: I am long MT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am also long CLF, JBL, and MT bonds, although not the CUSIPs mentioned in this article.