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Jonathan Yates
Do Rising Interest Rates Favor Calamos Asset Management?

For investors looking to profit from a bear market in bonds due to rising interest rates, Calamos Asset Management (NASDAQ: CLMS) could be a stock in the financial services sector that benefits.

Calamos Asset Management has a specialty in convertible bonds.

Its founder, John Calamos, is one of the preeminent experts in this niche area of the financial markets.  When interest rates are low, there is little reason to issue convertible bonds, which offer part ownership of the company along with the debt repayment and interest.   A company does not have to offer part of its equity when it can secure financing at a low interest rate for a debt offering, resulting in convertible bonds losing appeal.

But when interest rates rise, convertible bonds become more attractive.  Rather than be saddled with high interest rate payments on its debt, issuers are more willing to couple equity with the bond offerings.  When that happens, the competitive edge of Calamos Asset Management in convertible bonds can be very lucrative for its shareholders.

As the chart below shows, this has not been the case in recent market action, however.


But the past is certainly on the side of those looking to buy Calamos Asset Management for future long term holdings.   In 2006, Calamos Asset Management was trading close to $40 a share as interest rates were much higher.  It is now around $10.00.  There is much for growth, income and value investors to like about Calamos Asset Management to consider buying shares for the long term.

The price-to-sales ratio is just 0.69.  That means that each dollar of sales for Calamos Asset Management is discounted more than 30% in the stock price.  There is also a huge cash position, making it appealing to value investors.  For those looking for income, Calamost Asset Management has a dividend yield of almost 5%.  At present, the average dividend for a member of the Standard & Poor’s 500 Index (NYSE: SPY) is around 2%.

With a beta of over 3, Calamos Asset Management is a very volatile stock.  That means there is ample opportunity for long term investors to buy when it is down to accumulate a position at a lower price.  The superior dividend of Calamos Asset Management pays for the shareholders to wait for the share price to recover.

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