Buy the Common, Sell the Preferred
10/07/2009 2:06 pm EST
I’m going to sell W.R. Berkley Capital Trust 6.75% Preferred (NYSE: WRB-PA) shares out of Jubak’s Picks as of October 7. They’ve given me what I wanted—a good return and safety—while the market and economy were at their shakiest.
But the reward for staying on board will be limited to the yield—about 7.2% at the moment—and I think I can do better while taking on only slightly more risk by moving from these preferred shares to the common stock of insurer W.R. Berkley (NYSE: WRB). I’ll be buying those shares today (see below).
I have a 17.5% gain—21.6% total return with dividends—on these preferred shares since I added them to Jubak’s Picks on February 17, 2009. (Full disclosure: I will sell W.R. Berkley Capital Trust Preferred out of my personal portfolio three days after this is posted.)
I’m buying the common shares of WRB as a replacement for the preferred shares that I sold out of Jubak’s Picks. I think they offer almost twice the upside with just slightly more risk.
I’m a big fan of the very conservative ship run by chief executive officer William Berkley. No financial company has escaped all damage from the recent (and, in my mind, continuing) financial crisis, but W.R. Berkley has dodged most of the big bullets. The $108-million writedown that WRB took in the fourth quarter, for example, was on invested assets of $12.5 billion.
The upside here is that, as the company told Wall Street in April, it looks like prices in its property and casualty insurance lines are starting to turn. In April, the company said it expected prices to improve as weaker insurers abandoned business by the end of 2009.
As of October 7th, I’m adding this stock to Jubak’s Picks with a target price of $33 per share by September 2009.
For the most recent report on the performance of the entire Jubak’s Picks portfolio, follow this link.