Ambac: Strange Divergence Between Common and Preferred Stocks

On November 2, I posted about the Ambac Preferred (AKT) which seemed undervalued at the time. It traded as low as 16.50 that day and closed at 17.18. I scaled out of my AKT position about a month ago when it reached 20, but I've been closely watching AKT for a possible re-entry point. But I've been surprised how strong AKT has held up.

What is the strange is the huge divergence since November 2, between the common stock (ABK) and the preferred stocks AKT and (AKF). Recently Warren Buffett announced he is going into competition against ABK and MBIA (MBI), so the common stocks seem riskier now and their upsides will be reduced, so this may explain part of the divergence. Another explanation might be pure market inefficiency.

Here are the closing prices on November 2 for ABK and the two preferreds (AKT,AKF):

The above omits the dividend return, so the preferreds have actually done even better if that is included. If anyone is still holding either Ambac preferred, it may be a good time to take some "off the table" .

AKT vs. ABK 1-yr chart:

Comments

[skinnerre@h...:]

AKF- is actually not a preferred stock,it is actually a bond. It is improperly listed as a preferred stock.
I learned about this after speaking to the treasurer of Ambac. He plans to keep these bonds out for 100 years!

2008 Jan 16 12:06 PM