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Subject:  Gibraltar’s 8’s of ‘15 Date:  2/22/2013  9:33 PM
Author:  globalist2013 Number:  34802 of 35593

Gibraltar Industries [Stock ticker: ROCK] is calling their 8’s of ’15. That means it’s time to do another stock versus bond retrospective.

I put on the position 05/19/09 at 64.095, for a projected CY of 12.5%, and a projected YTM of 17.4%, which is decent money for B2/B+ bond position. Due the 03/04/13 call at par, my achieved CY remains the same 12.5%. But my achieved YTM bumps to 22.6%, which, again, is merely decent money for a B2/B+ position that has been bought in a timely manner. How would the buyer of the common have done over the same holding-period?

On 05/19/09, ROCK closed at $7.92 (after opening at $7.83 and tagging $8.15 for the day’s high and $7.771 for the day’s low). It cannot yet be known where ROCK will close on 03/04/13. But let’s project the current trend, and let’s make a guess that $18.17 (or no higher than previous resistance) would be not unreasonable. So, taking a compound root equal to the holding-period in years of the fraction obtaining by dividing the exit price by the entry price suggests an annualized gain of 24.5%, or pretty much a wash with buying the bond from the viewpoint of initial dollars put at risk versus total dollars returned due to each investment alone. However, if the coupons from the bond had been re-invested, the difference between buying the bond and buying the common narrows even further. But that’s not how I score bond gains. Re-invested coupons are “new money” investments, and they have to stand on their own merits. But the fact that the gains from buying the bond, or buying the common, would have been so close does suggest that buying the bond was a good move.

Now, let's spend a few more minutes and think about bond-investing in general terms. Two types of gains are possible from bond-investing, a stream of income from the coupons that will be taxed at ordinary-income rates, and possible capital-gains if the bond were bought at a discount to par and/or redeemed at a premium to whatever the entry- price might have been (as sometimes happens with call or tenders). The cap-gains will be taxed at a more favorable rate. But you can be assured that you will pay taxes on those gains. In the case of Gibraltar’s bond, the ratio of ord-inc to cap-gains turns out to be roughly equal, 46:54, which is very unusual. Generally, the ratio is closer to 3:1 or 4:1, or about the reverse of what a stock jock gets from buying “divvie stocks”. Let’s guess our would-be bond buyer has a marg