This is a free preview of Porter & Co.’s Distressed Investing. In the full issue, analyst Marty Fridson details the performance of the recommended list of distressed bonds and equities. To get the full issue, click here.
A Sell Alert And A Review Of Current Recommendations
The Energy sector is unrepresented
In the present distressed issue lineup,
How it will stand when this period has ended
Could depend on where oil prices wind up.
– Martin Fridson
Financial markets focused acutely on three factors in July.
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The beginning of earnings season. Updates on how the latest quarterly results affected some of the Distressed Investing recommended securities can be found below.
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The outlook for the hyperscalers – the tech companies currently spending hugely on data centers to remain competitive in the artificial intelligence (“AI”) battle. That activity had limited impact on distressed bonds, which all carry speculative-grade credit ratings (BB or lower and almost entirely B or lower). Alphabet (GOOG), Amazon (AMZN), Meta (META), and Microsoft (MSFT) are all rated AA or AAA, at least for now.
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The price of oil, as prospects for peace with Iran and full reopening of the Strait of Hormuz continued changing from day to day. The West Texas Intermediate (“WTI”) crude oil futures contract jumped by one-third, from $69.50 on June 30 to its intramonth peak of $92.19 on July 23. This commodity price has become such a great preoccupation that the July 23 New York Times “Stocks & Bonds” column dwelt on it to the point of not even mentioning what happened to the S&P 500 or any other stock or bond index the previous day.
The WTI price has been on an uptrend throughout 2026, soaring from $57.42 on December 31 to a high of $112.95 on April 7. That rise helped to reduce the Energy component of the ICE BofA U.S. Distressed High Yield Index from five bonds at the end of last year to zero at the end of July. (Inclusion in the index is based on a yield at least 10 percentage points over U.S. Treasuries.) Since December 31 three of the distressed-energy exited as their yield premiums contracted sharply to reflect their greatly improved outlook. Year-to-date total returns for those rallying three bonds through July 31 ranged from 25% to 49%.
As a pointed reminder that distressed investing’s high returns come with high risk, the other two Energy bonds that left the distressed index this year did so as a result of default or bankruptcy. Painstaking research is required to separate the gold from the fool’s gold in this asset class.
The distressed index’s composition has evolved over the course of 2026, but the distress ratio has barely budged, thanks to investors’ continued optimistic take on the economy’s prospects. This statistic measures the percentage of issues in the ICE BofA U.S. High Yield Index qualifying for inclusion in its distressed subindex, as explained above. The accompanying graph shows the ratio at 5.4% on December 31 and 4.9% on July 31. Those figures compare with a historical average of 12.4% and a median of 7.9%.
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