A Different Kind of Junk.

This article focuses on investments in junk, or high-yield, bonds. Don't bet on a repeat of high-yield bonds' scorching 2003 record. If you like the sector, look at buying the bond issuers' stock instead. In 2003 the J.P. Morgan High-Yield Bond Index surged 28%. Thus far this year it has inched up a mere 1.4%. Dropping default rates for these bonds (an annualized 3.9% lately, down from 6% in January 2003), courtesy of a recovering economy, are making them generally less speculative. But there's a clever way to keep the high-yield party going: Buy the stocks of junk-bond companies, not the bonds. Even amid the best market for junk bonds since 1991, you would have been better off holding junk stock, says Anton Pil, a fixed-income strategist at JPMorgan Private Bank. The J.P. Morgan High-Yield Stock Index was up 50% during 2003, almost double the performance of the junk bond index. Holding equity in these companies offers two advantages. The best junk stocks are those in which turnarounds are well along--which means de-leveraging.