What to Look for in Preferred Stocks

As an example below is a list of Bank of America prefs and their approximate return potential during the next 12 months or so.

Obviously, this is my opinion of their potential only, and thus is not a recommendation in any way, but it does appear as if some of prefs of the companies BofA acquired over the last several years (Countrywide, MBNA and Fleet) are currently mispriced and offer an additional return when compared to the regular BAC prefs.

The idea behind the whole arbitrage opportunity, is that at the time were default probabilities are roughly evenly distributed and were individual issues are unlikely to get called out, all of the prefs would trade based on several main components --current yield, tax deductibility and cummulative feature.

So one can see that not all prefs of the same issuer are equally mispriced and some could now actually be overvalued on the relative basis.

by Vad Yazvinski |  10/31/08  |  Stocks: BAC, DB, HSBC, JPM, STI, WFC,