I’ve been away for a few days, so this is kind of a catch-up post:

Timber
No, I’m not just talking about the general direction of the market. Last week, I made the rare suggestion of a pairs trade involving a short of Plum Creek (PCL) against a long position in Rayonier (RYN). That pair typically trades in a very tight band, and it looked to be hitting the top end of the range, which also creates a sizable gap in the respective dividend yields. Last week, that pair narrowed 1.7% - not a bad one week return in an otherwise tough environment.

Weyerhaeuser (WY), like most other stocks, sold off even more and hit a new 52-week low today. WY is currently yielding better than 4.5% and is going for under 1.5x book. It’s probably not going to win any style points, but I think Weyerhaeuser is a good backdoor play on timber, an asset class that a number of people I know like much more than equities or fixed income.

Oil
A few days back, I made a post showing the divergence between crude oil prices and the E&P companies; since then the gap has further widened by just less than 2%. I still haven’t seen a good explanation for the run-up in oil prices without any such move in the stocks of the oil majors, so any suggestions would be great.

Lenders
Right before the January rate cuts, I penned a piece on the only three financials worth buying, because I saw the chance for some very well-run lenders to go into the deep discount bin on further sell-offs. Things popped, but we’ve round-tripped back to a point where Wells Fargo (WFC), US Bancorp (USB), and American Express (AXP) are either at or within a dollar of 52-week lows. Of the trio, I prefer AXP the most because it’s business model differentiation; but money flow in the credit card area has been squarely in favor of Visa (V) and Mastercard (MA) of late - even if I think that’s misguided. The momentum is clearly behind V and MA, but I think the price/value equation points in favor of AXP. Time will tell.

Guarantors
I can’t remember the last time I found something on the internet with as much value as reading two hedge fund managers argue it out over their respective positions in the financial guarantors Ambac (ABK) and MBIA (MBI). Here, Tom Brown (who is long) kicks things off with a rebuttal to a note Whitney Tilson (who is short) wrote about MBIA. Tilson responded, and Brown fired back with another reply.

My own favorite guarantor is Primus (PRS), which writes credit default swaps on mostly investment-grade corporate debt. I recently wrote a stock report and published my notes from a conversation I had with the company shortly thereafter, and would like to clarify one thing I said: Primus should not only consider buying back its own stock to effectively leverage up the company’s underutilized capacity; instead, the company should look to buy back its 7% senior notes. The ticker for those is PRD, and with a par value of $25, the current $11 price offers a nearly 16% yield… not to mention the possibility of great capital gains. While I realize that voluntarily withdrawing a long-term funding source at times like this could be risky, it’s going to be hard to top a 16.2% annualized return.

Airlines
The Philadelphia Inquirer had a story today about a report due out on the changing landscape of airline travel. While I’ve just started to read it myself, it’s a fascinating - albeit grim - look at what could transpire if airlines start going under. Read Beyond the Airlines’ $2 Can of Coke.

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Disclosure: I own shares of Primus common stock (PRS) and am looking to buy the preferred notes (PRD).