National General Holding Corp Notes Cheap

In this low interested environment, National General Holding Corp. Subordinated Notes (NGHCZ) are really attractive.

National General Holding Corp. Subordinated Notes

  • Symbol: NGHCZ
  • Principal Amount: $25
  • Coupon Rate: 7.625%
  • Call Date: 9/15/2020
  • Mature Date: 9/15/2055
  • Distribution Dates: Quarterly
  • Current Price: $25.17

“National General Holdings Corp. is a specialty personal lines insurance holding company. Through its subsidiaries, the Company provides personal and commercial automobile insurance, health insurance products and other niche insurance products. It operates in two segments: Property and Casualty and Accident and Health. Its property and casualty insurance products protect its customers against losses due to physical damage to their motor vehicles, bodily injury and liability to others for personal injury or property damage arising out of auto accidents. Its accident and health business provides accident and non-major medical health insurance products targeting its existing P&C policyholders. The Company is licensed to operate in 50 states and the District of Columbia, but focus on underserved niche markets.”

NGHC (the parent company) is in a stable insurance business:

  • It is pretty safe company. It has a market cap of $2 billion+ and a tangible book value $1 billion+.
  • It is profitable and earnings are growing.
  • Manageable debt at $528 million.
  • It is growing both organically and acquiring companies.
  • Their investment portfolio looks conservative and does not fluctuate widely to interest moves.

The risks with a longer term debt maturity is that when interest rates go up – the price of the security will go down. However, at nearly 8% interest a year – this security seems underpriced.

Disclosure: I am long NCHCZ

Income options

With the market historical highs, It is harder to find good value stocks. On the other hand, there are not many good alternative income investments to invest in while waiting for stock prices to come down. I did find a couple that are worth sharing. Both of these have a couple things in common:

  • Decent yield.
  • Relatively safe investment.
  • Short term. At these rates, I would stay away from long term bond or preferred stock investments.

SLM Corp Series A CPI Linked Notes

  • Symbol: OSM
  • Principal Amount: $25
  • Coupon Rate: CPI Linked + 2%
  • Call Date: Not callable
  • Mature Date: 3/15/2017
  • Distribution Dates: Monthly
  • Current Price: $24.30

OSM will mature in less than 3 years. It give a CPI linked monthly dividend (currently 3-4% annually). I expect the price to move from $24.30 to $25 within in the next year. If that happens, you are looking at a nice 7% return for a year for a relatively safe investment. 

Read more about it here.

Bank of California Senior Notes

  • Symbol: BOCA
  • Principal Amount: $25
  • Coupon Rate: 7.5%
  • Call Date: 4/15/2015
  • Mature Date: 4/15/2020
  • Distribution Dates: Quarterly
  • Current Price: $25.66

Boca is giving around a $.50 dividend at end of this month. So, it is almost trading at par value. You have to be careful not to buy it at a high price since it is callable next year.

Read more about it here.

Disclosure: I am long OSM and BOCA. 

PMC Commercial Trust (PCC) Interesting Merger

For a while, I have been meaning to write about interest sensitive stocks stocks. One of these stocks that I have had in my portfolio for quite a while is PMC Commercial Trust (PCC). PCC is a REIT that makes small business loans in the hospitality industry. The company focuses on SBA loans in which the government guarantees a substantial portion of the loan. The government portion is then sold at a profit to investors. PCC keeps the non-guaranteed portion of the loan.

PCC had been trading around $7-$8 for a long time and what made it a interesting investment was:

  • It gives a steady dividend. Currently, it is $.50 annually. In the past, it has been been above a $1. 
  • The majority of the loan the company keeps is variable interest rate loan (LIBOR based). With interest rates going up, it is an opportunity for the company to earn more money and increase dividend and stock price over the coming years.
  • It trades at a significant discount to its book value of $13+.

Before I could write this up, the company announced a merger with a private company, CIM Urban REIT last week. The stock shot up over a $1. Here is the press release, but here are the simplified details:

  • Existing shareholders will receive a special $5.50 dividend.
  • The merged company will have a implied valuation of $2.439 billion (based on CIM Urban equity) and pay a dividend of 3.5 after the merger.
  • PCC shares should trade at $10.50 (pre-dividend of $5.50) if the merged company trades at the implied valuation.

The stock is trading at $9.38 today. There are a couple ways to win here:

  • It is hard to say what the company will do post merger since we don’t have the specific financials of CIM, but if it trades near the implied valuation, there is upside here.
  • The deal undervalues PCC. CIM could come in with a better offer at shareholder dissent or a rival could make a better offer.
  • At 9.38, the merged company trades at over a 20% discount to the implied valuation and I don’t see it going down much further.

If the deal does not go through, the stock could fall, but this is a stock that would be to hold due to rising interest rates. For now, I am keeping my shares.

Disclosure: I own shares of PCC. 

Sallie Mae Preferred Looks Interesting

Sallie Mae (SLM), the education loans company, has a preferred floating rate stock that is very interesting.

  • Par Value is $100.
  • Currently trade around $60.
  • Dividend is floating based three-month LIBOR plus 1.70% per annum. Three-month LIBOR is at an all time low. Here is the libor rates history. The last four dividends add up to $2.14 or 3.5% at the current price. 
  • They are callable at anytime at $100. They do not mature.
  • They trade on NASDAQ under the symbol SLMBP. 
  • The are non cumulative meaning if the company misses a dividend payment, they don’t have to pay later.

The positives:

  • For every 1% the libor rate goes up, the stocks yield will go up 1.67% due to discounted stock price.
  • If LIBOR rates go up from historic lows, the stock price will go up significantly. For example, in 2006-2007, the three-month libor was around 5+%. If rates go up to that level, this stock will yield 11+% at the current price of $60. During that time, the stock was trading around par value or $100.
  • 3.5% is a decent yield in this environment. 
  • SLM is a $9 billion company.
  • Taxed at 15% dividend rate.

The negatives:

  • Need to more research on SLM. The security is only good as the viability of the company. 

I will update the site once I do more due diligence on SLM.

Disclosure: I do not own SLM

Safe 7-8% Yield HCJ

Homeowners Choice (HCI), a Florida property and casualty insurer, recently sold 8% senior notes. I bought some today as they are a great deal. Here are the details:

  • Par Value is $25.
  • Currently trade around $26.33.
  • Quarterly dividend of $.50. At par value, they give a dividend of 8% annually.
  • They are callable on 01/30/2016 at $25. They mature on 01/30/2020.
  • They trade on NYSE under the symbol HCJ. 

The positives:

  • At current interest rates, a great deal for a medium term bonds. In the worst case, they will mature in 7 years. 
  • HCI is highly profitable $200+ million company.

The negatives:

  • HCI is not a multi billion dollar company.
  • Business is concentrated in Florida. A big hurricane could have an effect on their financials even though they are safeguarded by reinsurance. 

They offer a good risk/reward ratio. Here are the details of the security.

Disclosure: I own HCJ.

Year end review

Happy new year! I took some time to disconnect over the last two weeks and enjoy the holidays. For the first post of 2013, I thought it might be a good to review all the picks from the last 3 months to see how I fared.


AIG is still one of my top picks. It is up about only $2 from the price I paid for the stock. However, I feel it still has significant upside. Mainly all the arguments I made previously still apply:

  • It trades at half of book value.
  • The government completely sold AIG shares at the end of 2012. It now only holds warrants in the company.
  • AIG sold its stake in AIA. It also has agreed to sell a majority of its stake in ILFC.
  • The company can now focus on its core insurance operations and improve its return on assets.

Dean Foods (DF)

I sold Dean at a little bit of a loss. I still think Fresh Diary Direct segment is undervalued. However, the volatility of Whitewave was too much for me to take. I think the best way to play Dean is to wait for them to distribute the Whitewave shares and buy it before the distribution date if the current prices remain as they are.

General Motors (GM)

GM is one of my biggest winners. It is up nearly 50% for me. The government sold off 200 million shares of its stake in the company to GM recently. This should have a positive impact on EPS. If the economy improves in US and Europe and vehicle sales return to a normalized state, earnings could easily be over $5 over the coming years. Also, it is slowly removing the overhang of the pension liabilities. This could also be a big boon.

With the stock to almost $30, I might cut my position in half and book some profit. The auto industry is very capital-intensive and very competitive.

Orchard Supply Hardware (OSH) & Sears Hometown & Outlet (SHOS)

I have written a lot about these two Sears spin offs and I am short both. As I mentioned in my previous articles, I am convinced Orchard will go under. So far, it has been a very profitable short for me. I am not 100% convinced on Sears Hometown, so I only have a small short position there. Both of these plays are a bit risky, since they are cheap on a revenue multiple basis. Sears Outlet is a wild card for SHOS. If it can grow that successfully, the stock may have upside. I have no faith in the Sears Hometown business as it has had negative same store sale numbers for years. I know a lot fellow financial bloggers are long SHOS and I am open on seeing their analysis. So far, I have been wrong as SHOS. It has bounced nicely from $30 to $35 recently.

Xerox (XRX)

I bought Xerox around $6.50. The stock is around $7.20 today. Nothing fundamentally has changed about the company since I wrote the bullish case. It still trades at a significant discount to FCF and has increased its dividend. I still think there is significant upside.

Genie Energy (GNE)

Genie was a quick arbitrage trade on its offer to exchange common shares for prefered shares. I booked little less than a 10% profit on the trade. I still think there may be an opportunity on this type of trade in Genie in the future. Nobody will exchange the common for the preferred as the common is trading higher than the preferred.

Pandora (P)

I have a small short position in Pandora. So far, it has not been a good trade as the stock has shot up from $8 to $10. I continue to believe that this company will not exist in the future. It really has no barriers to entry, no competitive advantage, and is not profitable. Obviously, a lot of Pandoras profitability depends on the outcome of the Internet Radio Fairness Act. However, there is no doubt that there will be more competitors in this space in the future. I will keep this short position.

Susser Holdings (SUSS)

Susser is up about a $1 from what I bought it at. It may take some time for this stock to go up. However, it should be able to expand a lot faster after the spin-off of SUSP. I have a small position and will keep that position.


I also missed out in some of my other bullish calls such as Facebook, Lumos Networks, Nacco Industries and Einsteins. I wrote a bearish case on Western Union, but the stock has been up since then. I still believe in the bearish case. I believe that Western Unions biggest competitor Moneygram will have a tough 2013 due to Western Unions price cuts. I will be looking to short in 2013.

DIsclosure: I own or am short most of the positions

Gne Preferred Start Trading

Gne Preferred (GNEPA) started trading today. As expected, the volume is really low. As of 12pm EST, there has been 1750 shares traded and the stock is $7.89. It is trading at around a 8% yield. Investors who exchanged the common shares are making a profit at the current price. The common was around $7.30 when the shares were exchanged one for one.

The dividend should be safe since GNE has plenty of cash and only 1.6 million shares are outstanding. GNE will only have to shelve out $1 million yearly on dividend payments. I expect the preferred to trade in the $7-$8 range. 

Read our article on GNE here.

Disclosure: I do not own shares of GNE.

Income Securities Watchlist

Currently, I am wary of income producing securities because interest rates are so low. As a result, I’m concentrating on income securities that have adjustable rates or are convertible. However, two of these three securities are neither adjustable or convertible. Here are some securities that are on my watch list.

AVF (AIG $25 denominated 7.70% Junior Debentures)

I have written about this security before, but it is finally at the price ($25.08) that I am comfortable with. Here are the brief details of the security. Read full analysis here.

  • Symbol: AVF
  • Principal Amount: $25
  • Coupon Rate: 7.7% or $1.925 before December 18, 2047. Three-month LIBOR plus 3.616% thereafter.
  • Call Date: December 18, 2012. AIG can redeem all ($1 billion), but not in part  before if a “tax event” happens or a “rating agency event” occurs anytime before December.
  • Mature Date: December 18, 2062, which can be extended to December 18, 2077
  • Distribution Dates: 3/18, 6/18, 9/18 & 12/18
  • Current Price: $25.08
I would buy AVF at any price around $25. 

HAVNP (10.25% capital securities New York Community Bancorp (NYB))

Here are the details of the security:

  • Symbol: HAVNP
  • Principal Amount: $10
  • Coupon Rate: 10.25%
  • Call Date: Currently callable $10.36, in 2013 callable at $10.31, etc..
  • Mature Date: 6/30/2029
  • Distribution Dates: 3/31, 6/30, 9/30 & 12/31
  • Current Price: $11.22

The danger with this security is that it can be called at anytime at $10.36. However, I’m not sure NYB will call it because:

  • NYB gives a dividend of 7% on the common shares.
  • The float is really small for HAVNP ($25.5 million).

To be safe, I would buy these at $10.50 or under. The price does drop to that range once in a while.


PMC Commercial Trust (PCC) is a REIT that makes loans to “small businesses collateralized by first liens on the real estate of the related business, primarily in the limited service hospitality industry.” Most of the loans they make are mostly guaranteed by the SBA (Small Business Administration). They sell off the guaranteed portion and keep the rest. 

The reason I am watching this stock is:

  • They are trading at almost half of book value.
  • They pay almost a 9% dividend.
  • There has been inquiry from private equity about the company and it has formed a special committee to study those inquiries.
  • Most of their loans are adjustable rates. Due to the low interest rates, they are really hurting. They are still profitable if you back out the costs for the aforementioned special committee. If interest rates rise, the stock price should rise with it.

There are risks associated with this stock:

  • Their income is not covering dividend payments. So, they could cut the dividend in the future.
  • Their loans are concentrated in the hospitality industry and in one region (Texas).

I have a small position in this stock that I initiated a while back. However, I’m waiting to see what happens before I buy more.

Disclosure: I am long PCC. 

Alternative Ways to Invest in Chesapeake Energy

Chesapeake Energy Corporation (CHK), the embattled U.S. oil and natural gas producer, has had a tough year. It has lost more than 30% of its market value due to historic low natural gas prices and Aubrey McClendon’s potential conflict of interest between his role as CEO/Chairman, and his personal stake in some of its assets. Although, McClendon’s conflicts have been cleared up, the low natural gas prices have caused a cash crunch.   

However, in every crisis, there is some opportunity. Carl Icahn, the legendary investor, has amassed a stake of over 50 million shares (over 7% of outstanding shares). He believes the assets of the company are worth far more than what the stock price belies. He is betting that cutting expenses, liquidating assets, and rising natural gas prices will lift the company.

At HypeZero, it is hard for us to follow Icahn’s lead and make a heavy bet on Chesapeake shares. We cannot be sure that natural gas prices will rise or that the assets of the company are as valuable as Icahn believes them to be. However, Chesapeake does offer some interesting alternatives to the common stock that allows investors to make money without as much risk. Let’s take a look.

Senior Notes





Current Price


















































During the pinnacle of the crisis, there was money to be made on these bonds. However, Chesapeake has stabilized and the bond prices reflect that. As you can see, all of them trading above the par value and none of them are offering a yield to maturity above 6%. Right now, none of them are suitable investments.

Senior Contingent Convertible Notes 






Current Price



















The convertible notes rank equally with the senior notes. Investors looking for safety with some upside might want to examine these securities. Out of the three, only 2.75% note has a realistic conversion price. But, at the current price of $103 and the stock being almost 50% below the conversion price, even this is not worth investing in.

Cumulative Convertible Preferred (CHK-PD) 





Current Price






Out of the all the alternatives, the cumulative convertible preferred is the most attractive.

  • At the current price, it offers a 5.5% yield. This yield is taxed at the 15% rate and it is cumulative. So if they ever miss a payment, they have to make it up in the future.
  • At the current price, the conversion price really becomes around $36/share instead of $43.9142.
  • It is junior to the senior notes, but still senior to the common stock.
  • As long as Chesapeake is not in any serious trouble, the coupon should provide a floor to the price. For example, a price drop from $82 to $60 would make the yield a very attractive at 7.5%.

If investors are very confident that natural prices are going to rise and Chesapeake is going to turn it around, then the common shares are the way to go. However, for investors that want the upside of the shares, but still want current income and more safety, the preferred is the way to go.

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Disclosure: I do not own shares of CHK or CHK-PD and I do not plan to initiate a position within the next week.