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Two Corporate Bonds Yielding 5%

12/01/2010 2:31 pm EST

Focus: BONDS

Marilyn Cohen

President & CEO, Envision Capital Management, Inc.

Marilyn Cohen, editor of the Forbes Tax-Advantaged Investor, recommends the debt of Newfield Exploration and Las Vegas Sands, both yielding more than 5% despite the recent rally.  

Hiding in plain sight and under the radar are two higher-yield bonds worthy of a risk taker’s yield-hungry portfolio.

Newfield Exploration's (NYSE: NFX) 6.625% notes due April 15, 2016 (CUSIP: 651290AJ7) are priced at 107 for a yield of 5.11% to maturity. Rated Ba2 by Moody’s and BB+ by Standard & Poor's, the notes are callable April 15, 2011.

This company is an independent oil and gas outfit. It operates in the Gulf of Mexico, onshore US, North Sea, Malaysia—all over the world.

Newfield has an interesting oil play up its sleeve—the Bakken field on the Alberta-Montana border. This oil shale play could be very significant for Newfield. Land in Montana is being snatched by oil companies. The geological evidence looks promising. Land prices have skyrocketed. Some analysts believe that the Alberta Bakken area may prove to be huge—a “multi-zone play” they’re calling it. Smart operators like Crescent Point in Canada, Murphy Oil, Rosetta Resources, and Newfield all have skin in this game.

Still, Newfield hasn’t bet the farm on this promising, but yet unfolding field. The company has been in line with its production costs. Oil production is approaching its optimistic expectations. Newfield’s other shale projects rate between encouraging and positive.

With energy prices on the rise and the thirst for new fields unabated, Newfield’s business is running along the high ridge of success.

Las Vegas Sands’ (NYSE: LVS) 6.375% notes due Feb. 15, 2015 (CUSIP: 517834AB3) are priced at 104.50 for a yield of 5.16% to maturity. Rated B2 by Moody’s and B by Standard & Poor's, the notes are callable Dec. 13, 2010.

It’s time to double down on gambling. With Las Vegas coming off the respirator, convention bookings looking a little better, the rate of table take, room and food revenues having stopped their nose dive, think of Las Vegas Sands.

Las Vegas Sands’ footprint in Macau has put LVS shares on a tear. Volume growth in Macau has been nothing short of breath taking. The company continues to ramp up its operations in Singapore. Margins are near 20%. Although the anticipated slowdown in China has been well publicized, it hasn’t panned out so far.

I can’t write enough flowery words about how well management has executed. What could ruin this rosy scenario is a consumer slowdown in Asia and/or government restricting travel.

Las Vegas Sands has but one bond issue. Other debt resides in the form of bank loans and revolving credit lines.

What is disturbing, however, is the small amount of debt outstanding on the bonds. You’ll have to be patient—very patient—to put your standing order in for the bonds. The trades are scattered and the buyers are competitive.

[For a rationale behind the similarly feverish demand for Las Vegas Sands’ common shares, check out the recent excerpt from Nicholas Vardy.—Editor]

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