Junk on the Radar

Yesterday I was asked by a good friend what stock would I buy if I had to buy one. I replied after a few minutes that I was glad I did not have to make that choice because I just cannot see myself entering a buy order right now.

We have had this sharp rally in the past month and we are way ahead of ourselves -- I will get a chance to buy more lower. I have not sold any of my long positions as I bought them for a long time frame, but I do not see myself buying any more until we see the market lower.

Gun to my head, I would buy a little more Prospect Energy (PSEC - commentary - Cramer's Take): 60% of book value, a strong balance sheet and a double-digit dividend that has been increased for 18 straight quarters is attractive. Absent the gun, I am more a hand-sitter than a buyer.

I am amazed by the continuing Pollyanna nature of Wall Street. Everybody was excited about United Technologies (UTX - commentary - Cramer's Take) beating the estimates after all. Since Wall Street analysts are the only creatures with a worse predictive record than weather reporters, I do not find this to be all that impressive.

Earnings were down 28% and revenue fell a little more than 12%. The company said orders remained slow and reaffirmed the lower guidance issued in March. The only part of the business that improved at all was Sikorsky helicopter, which provides aircraft to the military. The company is laying off over 11,000 workers as part of its restructuring.

One measure I am tracking very carefully is high-yield defaults. When Marty Whitman is telling everyone that he is seeing the best prices in distressed securities in his lifetime, I tend to pay attention. Whitman, like a lot of investors, is just coming off his worst year ever. However, he has done well in difficult times and is known to be a good credit analyst. The Forest City Senior Bonds (FCY - commentary - Cramer's Take) that I suggested readers piggy-back in March following Whitman's disclosure he was a buyer have already done well.

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At the time of publication, Melvin was long Prospect Energy, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.