4 Best Corporate Bonds To Buy 2024 - Bondsavvy (2024)

Our Best Corporate Bonds To Buy 2024 Preview

Bondsavvy's new corporate bond recommendations included bonds issued by companies in the medical devices, homebuilding, energy, and agriculture industries. Three of the recommendations had double-B bond ratings ("high yield") and one had a triple-B bond rating ("investment grade"). Three bonds had 2027 or 2028 maturity dates, and one had a 2034 maturity date.

Can I Still Buy the Recommended Bonds Near the Pick Date Price?

As of January 24, 2024, the answer is 'yes.' Our goal is for Bondsavvy subscribers to be able to purchase our recommended bonds at or near the recommended prices. As our subscriber base grew, in March 2021, we implemented several actions to limit the market impact of our bond recommendations. To date, these actions have been successful.

Owning individual bonds vs. bond funds is the more cost-effective way to invest in bonds, as investors do not pay a recurring fee based on a percentage of what they invest. In addition, bond funds incur significant trading costs. Bond funds do not disclose the amount of these costs and exclude them from the "expense ratio" fund managers such as Vanguard trumpet. By taking actions to limit our market impact, we have enabled our subscribers to purchase bonds at competitive prices and to maximize their corporate bond returns.

In Figure 1, we show the prices of our recommended bonds on the January 11, 2024 pick date, as well as on January 24, 2024. In addition, we show each bond's YTM on January 24. As shown in Figure 1, two of the recommended bonds had January 24 prices slightly below the pick date price. One bond, "High yield bond 2," had a price that was 0.65 points higher than the pick date price. The fourth bond's price had only changed 0.01 points between the pick date and January 24.

Subscribe to Bondsavvy to learn the names, CUSIPs, and investment rationale for these and all of our 65 corporate bond recommendations.

Figure 1: Bond Prices of Our Best Corporate Bonds To Buy 2024 -- January 11 vs. January 24, 2024

Source: Fidelity.com

Why Own Our Best Corporate Bonds To Buy 2024

Owning individual corporate bonds enables investors to lock in high income for a specific time period and to have the opportunity for capital appreciation. Individual corporate bonds also, at maturity, provide for a return of the $1,000 face value for each bond you own. With individual corporate bonds, investors can build bond portfolios suited to their investment objectives and risk tolerance.

Since corporate bonds are priced as a percentage of their face value, investors can evaluate a bond's price, YTM, and credit spread and compare these metrics to the bond issuer's financials. This financial analysis is the heart of the Bondsavvy subscription and enables us to identify bonds that can achieve strong total returns over the long term. This analysis is not possible when investing in bond funds and ETFs, as we discuss below.

A compelling alternative to money markets, CDs, and bond funds

In the December 2023 Fed dot plot, the US Federal Reserve projected 2.5 points of interest rate cuts through 2026. Should this happen, popular money market funds such as Vanguard VMFXX will see their yields fall in lockstep with the Fed funds rate. In addition, since Vanguard VMFXX targets a net asset value per share of $1.00, VMFXX cannot have capital appreciation. Some CD rates may currently seem attractive; however, CDs often pay their income at the end of their term (compared to corporate bonds, which pay interest semi-annually), can come with onerous call provisions, and lack capital appreciation opportunities.

Mega bond funds such as Vanguard VBTLX are not fixed income investments. They do not pay a fixed coupon and do not return an investor's principal at maturity, as they do not have a maturity date. Bond funds such as VBTLX own thousands of bonds, which drives muted (and often low) returns and makes investors unable to build a portfolio that fits their investment objectives. Further, since bond funds and ETFs do not trade relative to a par value and lack underlying financial metrics, investors cannot assess whether a bond fund investment represents a compelling value.

Our Corporate Bond Investment Analysis

We kick off The Bondcast presentation discussing economic trends, recent market bond yields, and our overarching investment themes. Bondsavvy then evaluates key issuer financial metrics such as leverage ratios and compares these to the corporate bond YTMs and credit spreads of our recommended bonds. We then do a deep dive into each of our issuers.

Figure 2 shows the first slide of our investment analysis section. As shown in the "Credit Ratios" columns, two of our best corporate bonds to buy 2024 were issued by companies that had negative "net leverage," meaning the company had more cash than debt on its September 30, 2023 balance sheet. While three of the bonds were issued by high-yield issuers, it is notable that each issuer had leverage ratios of 2.5x or less, with two issuer leverage ratios falling below 1.0x.

You'll notice Bondsavvy founder Steve Shaw in the upper right hand corner of the PowerPoint slide. As Bondsavvy hosts The Bondcast on Zoom, Steve discusses the key points and conclusions from each slide and answers subscriber questions as they are received.

Figure 2: Investment Analysis Slide Excerpted from the January 11, 2024 Edition of The Bondcast

After reviewing the above and several other investment analysis slides, we discuss the investment rationale for each bond and the business of each issuing company. We then review each issuing company's capital structure, capital allocation, recent changes in bond ratings, and recent financial performance in our "Additional Considerations" slide for each issuer. Figure 3 shows the "Additional Considerations" section for the homebuilder bond we recommended as part of the best bonds to buy 2024.

We gray out the identity of the issuing companies and other select metrics in Figures 2 and 3, as our investment recommendations are exclusive for Bondsavvy subscribers.

Figure 3: "Additional Considerations" Slide from Best Bonds To Buy 2024 Presentation

Performance of Bondsavvy's Recent Investment Recommendations

Bondsavvy presents new corporate bond recommendations each quarter during The Bondcast and updates its recommendations quarterly during The Super Bondcast. In addition to these subscriber webcasts, Bondsavvy has an email newsletter that provides bond recommendation updates between subscriber events. Also included in a Bondsavvy subscription is access to Bondsavvy Forum, where subscribers can ask questions about our recommendations or other bond-investing-related topics.

Performance transparency is paramount for any investment service. It provides prospective customers the information they need to decide whether a service is for them. It also enables Bondsavvy to evaluate previous investments, understand what drove their performance, and apply what we have learned to future and current investments.

Bond Recommendation Highlights

Investors can find the performance of Bondsavvy's exited and current bond recommendations on our corporate bond returns page. Of the 54 bond recommendations we have sold, we have outperformed the leading corporate bond ETFs 74% of the time, including 17 picks where we outperformed by at least 10 percentage points.

Our existing bond recommendations benefited from the year-end 2023 bond market rally. Highlights from our December 29, 2023 performance update of these recommendations include:

1. Of the 61 bonds we rated buy or hold on December 29, 2023, 24 achieved capital appreciation of at least 7.50% between November 22 and December 29, 2023. Four bonds achieved capital appreciation of at least 12.5% during this time
2. In a challenging recent environment for bonds, 14 of our 27 most recent bond picks (picks made since April 2022) have achieved total returns of at least +8.00% since their pick date. Twenty-five (25) of 27 picks achieved total returns of at least +4.25%
3. Total return highlights of our recent picks included: a communications company bond (+20.01% since March 8, 2023); a homebuilder bond (+16.49% since March 8, 2023), a manufacturing company bond (+15.29% since November 16, 2022), and a technology company bond (+13.36% since June 22, 2023)
4. While many bonds rallied in the latter part of 2023, work remains to make many bond picks from the December 2020 to January 2022 low-interest-rate period successful for our subscribers

Industry Groups of Our Bond Issuers

As stated above, investors owning individual corporate bonds can build a portfolio based on their investment objectives and risk tolerance. Assessing risk is always a big part of any investment, but so is attempting to capture growth opportunities. Owning corporate bonds across a variety of industries enables investors to mitigate risk and to gain upside exposure.

The tailwinds and headwinds impacting the 16 different industries represented by our issuing companies are always changing. For example, as commodity prices rose during 2022, it drove record financial performance for several of our issuers in the metals & mining and energy industries. This strong financial performance enabled bonds issued by these companies to hold steady (or limit price declines), as the rest of the bond market experienced one of the worst fixed income markets of all time.

Figure 4: Number of Issuers by Industry for Bondsavvy's Current Buy/Hold Recommendations

Yields to Maturity Summary of Our Buy/Hold Recommendations

On January 24, 2024, the 65 bonds we rated either buy or hold included 38 high yield corporate bonds and 27 investment grade corporate bonds. Please note that we updated our buy/hold ratings in November and December 2023 after companies reported their Q3 earnings. We will be updating the buy/sell/hold ratings of each current Bondsavvy recommendation during the March 7, 2024 edition of The Super Bondcast.

Figure 5 shows a distribution of YTMs of the 38 high yield corporate bonds on our buy/hold list. Our goal is to achieve total returns that exceed a corporate bond's YTM when possible. That said, as 13 of our 38 recommended high yield bonds have maturity dates of 2028 and earlier, there could be times when we hold bonds to maturity.

Many investors favor investment grade corporate bonds vs. high yield bonds due to their perceived higher level of safety. While many high yield corporate bonds may have higher default risk than investment grade bonds, high yield bonds generally have lower interest rate risk. This is due, in part, to their higher coupons, shorter-dated maturities, and higher credit spreads.

When the US Federal Reserve hiked interest rates in 2022 and 2023, the worst-performing bonds were generally investment grade corporate bonds, due to their sensitivity to US Treasury yields. Many high yield corporate bond prices remained steady, with some even achieving positive returns. In addition, investors should not be led to believe that all investment grade bonds have lower default risk than high yield bonds. As we discuss in our corporate bond ratings blog post and imbedded YouTube video, bond rating methodologies have flaws. There are many cases where bonds are rated investment grade despite the issuer having inferior financials to many high yield bond issuers.

Investors would be surprised that there are many investment grade issuers with leverage ratios above 4.0x and many high yield bond issuers with leverage ratios below 2.0x.

Figure 5: Distribution of High Yield Bond Yields to Maturity of Bondsavvy Recommendations -- As of January 24, 2024 (38 Bonds)

Source: Fidelity.com and FINRA TRACE data

Figure 6 shows the distribution of January 24, 2024 YTMs across the 27 investment grade corporate bonds we rated buy or hold. While our investment grade corporate bond recommendations have, in general, lower YTMs than our high yield bonds, many of our investment grade bonds could achieve higher total returns than certain high yield corporate bonds.

There are two primary reasons for this. First, many of our investment grade corporate bonds now trade between 58% to 68% of their $1000 face value. While many of these bonds rallied in November and December 2023, these bonds have a long way to go until they reach par value. Should these bonds approach par value well in advance of their maturity dates, such bonds could achieve double-digit annual returns.

In addition, investment grade bonds are generally not subject to bond call schedules in the way high yield corporate bonds are. Investment grade bonds typically have make-whole-call provisions. Such provisions are onerous to bond issuers and rarely invoked, which enables certain investment grade bonds to trade well above their par value. Since most high yield bonds are subject to call schedules, their upside is often limited when compared to investment grade corporate bonds.

Please read Section 6 of our when to sell bonds blog post for more information on the differences between call schedule bonds and make-whole-call bonds.

Figure 6: Distribution of Investment Grade Bond Yields to Maturity of Bondsavvy Recommendations -- As of January 24, 2024 (27 Bonds)

Source: Fidelity.com and FINRA TRACE data

Bond Maturity Date Summary of Our 65 Bond Recommendations

Bondsavvy's service is unique among corporate bond research, as our bond recommendations are at the individual bond, or CUSIP, level. Most fixed income research evaluates the creditworthiness of bond issuers; however, it lacks recommendations on what specific bonds investors should buy.

Some large bond issuers may have over 50 bonds outstanding, which is why providing CUSIP-level recommendations is so important. In addition, over time, we have seen how different maturity dates can drive myriad investment outcomes.

Today's corporate bond market can support many different investment objectives. There are investment grade bonds with solid coupons and three- to five-year maturities. There are longer-dated investment grade bonds that offer significant potential capital appreciation. There are also high yield bonds that offer higher coupons, lower interest rate risk, and capital appreciation opportunities.

Figure 7 shows the distribution of maturity dates of Bondsavvy's 38 high yield corporate bond recommendations. High yield bonds are typically issued with initial maturity dates of five to ten years. As expected, 27 of our 38 recommendations (71%) had maturities of approximately eight years and fewer as of January 24, 2024.

Figure 7: Number of Bondsavvy High Yield Bond Recommendations by Maturity Date Range -- As of January 24, 2024

Figure 8 shows the maturity date distribution of Bondsavvy's 27 investment grade corporate bond recommendations. Sixteen of these bonds have maturity dates of 2040 or later. Many of these bonds trade well below par value and offer significant upside over the long term.

As interest rates began rising in 2022, we were able to add shorter-dated investment grade bonds that offered mid-single-digit YTMs. These bonds don't offer the upside of the longer-dated bonds, but they also don't generally have the significant pricing volatility often associated with long-dated bonds.

Figure 8: Number of Bondsavvy Investment Grade Bond Recommendations by Maturity Date Range -- As of January 24, 2024

Why Subscribe to Bondsavvy Now

We founded Bondsavvy in 2017 so more individual investors could take advantage of the income, growth, and relative safety individual corporate bonds can provide.

Individual corporate bonds enable investors to lock in high income for longer than is possible with money market funds (such as Vanguard VMFXX) and popular taxable bond funds (such as Vanguard VBTLX). Bond funds do not pay a fixed rate of interest and cannot be counted on to repay your principal since they do not have a maturity date. Owning individual bonds also positions investors to achieve higher long-term investment returns, as we show on our corporate bond returns page.

Given that certain stock market indices have been hitting record highs in January 2024, some investors may be looking for safer investment alternatives that still provide compelling returns. Individual corporate bonds offer income, growth potential, and safety relative to stocks.

While individual corporate bonds offer many advantages over other investments, it can be difficult for investors to select among the 9,000 corporate bonds available on online bond trading platforms. Our investment analysis cuts through the bond market clutter to identify bond investments that can achieve strong long-term performance. Bondsavvy gives you an edge, keeps you on top of the market, and saves you time.

Individual corporate bond investing is all we do. We believe this focus and expertise sets us apart and provides significant value to our subscribers.

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