Now might be a good time for value investors to check out the convertibles market.
"It's been a tough first six months for convertibles," said Steven Jones, co-director of research of Forum Capital Markets, Old Greenwich, Conn.
"This is the point where we think there are an awful lot of good opportunities to get in at an attractive level."
Not only were convertible securities hurt by rising interest rates, which caused high premiums to contract, the underlying equities were hurt by the stock market's performance. But some sectors held up pretty well. Philip Platek, co-director of research, likes health care, banking, automobiles, auto parts and home builders.
Individual issues the firm is recommending include: Agco Corp., a farm equipment manufacturer whose convertible preferred is trading at a very low premium; Wheeling-Pittsburgh Corp., an integrated steel producer; and Varlen Corp., a small trucking, rail and auto parts company.
"There was some serious hemorrhaging, but now the market is stabilizing and morale is improving. (With) the slowdown in new issues, secondary trading is getting more important," Mr. Jones said.
An added advantage of convertibles: "Convertibles provide better downside protection in an uncertain market," said Mr. Platek.