Time Warner Cable Inc (TWC), The Boeing Company (BA), Oneok Partners LP (OKS): You Should Keep Your Eyes Focused on Credit

Page 1 of 2

Time Warner Cable Inc (NYSE:TWC)The market has experienced the largest sell-off in Treasuries since October 2011 and the largest widening of credit spreads since May 2012. The logic seems to indicate that this trend should continue in the foreseeable future. Sectors with high financial leverage and low operational leverage (such as utilities and tobacco companies) should underperform in such a scenario. Meanwhile, companies with high pension deficits as well as those with high operational leverage and low financial leverage should out-perform as yields continue to rise.

Here I chose two companies that should be hurt from the coming scenario as well as one company that should largely benefit from it.

Two losers within the current credit context

Time Warner Cable Inc (NYSE:TWC), the US cable operator, shares all the characteristics that I am looking for. The company has a net debt to EBITDA above three times, negative earnings revisions and negative correlation with the ISM index (which is a proxy for operational leverage). Even when the company is a good cash flow generator (its free cash flow yield is 8.4%) and pays a good 2.7% cash dividend yield, I think the company is overly exposed to rising bond yields. Besides, higher CapEx needs and a higher churn are motives for concern. Trading at 2013 15.6x P/E I would sell Time Warner Cable Inc (NYSE:TWC).

Oneok Partners LP (NYSE:OKS) owns an interstate pipeline system that transports natural gas. The company not only has a negative 49% correlation to the ISM index. It also has a net debt that represents 4.65 times the company’s expected EBITDA. Oneok Partners LP (NYSE:OKS) has a fee-based business model built on assets secured by long term contracts. Hence, the company’s cash flows are low-risk, and the company resembles a perpetuity bond with its coupon tied to gas prices. Paying a 5.7% cash dividend yield, I think Oneok Partners LP (NYSE:OKS) shares are at risk in the context of rising bond yields.

One potential winner

As I mentioned before, companies with high pension deficits should benefit from rising bond yields. The Boeing Company (NYSE:BA) is not only a correctly managed organization that owns a business with huge barriers to entry. The company also has enormous pension obligations. The Boeing Company (NYSE:BA)’s pension obligations represent 36% of the company’s total market capitalization. Besides, the company’s earnings are positively correlated with the ISM index, and its valuation looks compelling at 16 times earnings. The Boeing Company (NYSE:BA)’s net debt to EBITDA is extremely low at 7%, and its 6% free cash flow yield (the company pays a growing 1.9% cash dividend yield) make it a great candidate when thinking of companies that will benefit from higher bond yields.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!