NBB in the Buy Zone

Let’s revisit a familiar friend from the past…

Nuveen Build America Bond fund (NYSE: NBB).

We first recommended buying this fund in the summer of 2011. Our Boom & Bust model portfolio grabbed a double-digit gain in this fund early last year.

Now, it’s on my radar again.

You see, investing for yield, or income, is nothing new. Bond investors have long earned sizeable returns this way.

But more recently, yield’s “stock is up,” you could say… it’s been all the craze as investors have been forcibly pushed out of traditional fixed-income products, thanks to near-zero, inflation-defeated rates that pay investors far too little to even justify the time it takes to hit the buy button.

The sudden increase in demand for such investments is both good and bad. It’s good because new products – ETFs, mutual funds, etc. – now give investors an efficient way to invest in this space. It’s bad because, as investors follow each other like lemmings off a cliff, prices can get bid up to expensive levels.

That’s why the recent selloff in many bond funds should be viewed as a gift to investors wanting to buy in… and not as cause for concern.

Build America Bond funds, which have come on the fixed-income scene recently, are much like municipal bond funds. They invest in municipal bond projects and offer investors monthly or quarterly payouts. And, they have the added bonus of having a portion of the payments backed by the federal government.

But as this trend caught on, price increases kept some investors waiting on the sidelines. Now, you have a chance to buy in at an attractive level. Take a look…

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Nuveen’s Build America Bond fund is now trading in the Fibonacci buy zone, between $19 and $19.60/share. This represents a pullback, from the uptrend that persisted from 2011 through early 2013, of 50% to 61.8%.

That’s the ideal “sweet spot” for buying into this uptrend. And best of all, the risk-to-reward ratio, from current levels, is quite favorable.

You can buy shares of NBB today for about $19.28/share. A stop loss order at the recent low, just below $18.50, is a reasonable way to manage risk. You’d stand to lose about $0.80/share if NBB doesn’t go higher from here.

My first profit target projection for NBB is just under $23… giving us more than $3.50/share in profit potential. That’s a risk-to-return ratio of more than 3.5-to-1… I’ll take that any day.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.