Thursday, July 23, 2009

Bought 50 OPXT as Lottery Ticket/ Digirad/EMC earnings/

1. Bought 50 Opnext at as a Lottery Ticket At $1.91 (see disclaimer): After discussing SIMG, I thought, what the heck, buy some meaningless amount of shares in another company that makes thingamajigs that Headknocker does not really understand. One thing about my professional career is that you become sort of a jack of many trades and master of none.

Opnext's cash on hand as of 3/31/09 is just about equal to its current market cap OPXT: Balance Sheet for Opnext, Inc. That money comes from its IPO in 2007, and there is apparently some litigation on representations made with that IPO. In January, Opnext used 30 million of its cash and 26.5 million shares to buy Stratalight Communications.

So whatever it makes, I am not paying anything for it, unless the company starts burning up a lot of its cash. Reuters has a good profile of the company. Suffice it to say OPXT makes "subsystems, optical modules, and components that enable high-speed telecommunications and data communications". e10vk Sound impressive, but the company is losing money. Morningstar has a report on it, rating it just 3 stars, and overall it is not favorably disposed to buying shares at the current price. So that is one reason less than $100 of capital is being deployed to buy shares. Another reason is that Headkocker wants dividends and consistent profits, and OPXT fails on both of those counts.

One long term problem is that two companies account for close to 50% of sales, Cisco and Alcatel. Whenever that happens, the customers have the pricing power, and have considerable power to dictate other unfavorable terms to the supplier. The second long term problem is the pace of innovation, which generally means new products have a short shelve life and better products have to be constantly rolled out. However, the current price is just around .51% of price to sales and price to book value according to the information at Ya Fin.

The Lottery Ticket category keeps RB busy without causing any real damage, and it has been on a roll lately with a hiccup here and there: LOTTERY TICKET PURCHASES: LINKS IN ONE POST

It would be a better use of my time to research companies where I am comfortable devoting capital with more zeros than $90. Sure, admittedly, that would be the rational way to approach it, and it would be the action recommended by LB. Another way would then have to be found to silence the RB. The RB wants to have some fun, rational is not exactly an appropriate description for it, and LB feels a need to spend some time researching these lottery ticket finds of RB before allowing the use of immaterial amounts of Headknockers cash which is treated by LB as a scarce resource, no matter the amount available to invest at any given point in time.

I would add this caveat. I would call whatever Opnext makes thingamajigs which establishes the extent of my expertise on the subject, which is nil of course, or as some would say, in a less diplomatic way, worse than nil since I probably think that I know something which in reality is wrong so that is actually less than nil (this phenomenon is called "negative information" here at HQ).

2. Digirad (owned): DRAD is another one of RB's lottery tickets, purchased a few weeks ago at $1.24 Bought Lottery Ticket 100 DRAD/ and LB allowed RB to go wild with a 100 share purchase. I guess that one could say that a profit of 784 thousand for the 2nd quarter is okay for this small company, better than the loss suffered in the 2nd quarter of 2008. Digirad also reported positive cash flow of 3 million. I did check the cash on the balance sheet. Cash and cash equivalents were listed at 15.735 million and securities available for sale were valued at 15.767 million. That is a total of 31.502 million. The market cap of the company as show at YF is just 26.53 million. Yah Fin Revenue for the last quarter was 18.6 million. For the last six months, revenue was 36.269 million. So the price to sales ratio is extremely low, well below 1.

3. EMC (owned): EMC reported 2nd quarter GAAP EPS at 10 cents and Non-GAAP at 18 cents, beating expectations by a penny. Revenue increased 3% sequentially. EMC issued upside guidance of 82 cents versus consensus of 78 cents. I do not recall when I initiated this position except that it was probably in the 2nd half of 2008, bought with cash flow.

4. Glimcher (owned GRT, GRTPRF, GRTPRG) I currently own both the common and the preferred shares of Glimcher, all bought as lottery tickets. LOTTERY TICKET PURCHASES: LINKS IN ONE POST (e.g. /Buys: GRT & GIVN GRTPRF: A WALK ON THE WILD SIDE/ KTN add) Glimcher reported its second quarter results this morning. It had a net loss of 3 cents per share and FFO of 44 cents down from 50 cents per share for the 2nd quarter of 2008. GRT expects FFO for the year to be in the range of $1.85 to $1.95. It also said it was in compliance as of 6/30 with all financial covenants.

5. Regions Financial (RF): RF was another lottery ticket purchase made at around the current price. I did not want to review its recent quarterly release, knowing in advance it would be depressing for RB. I was expecting more proof of rampant incompetence, and I was not disappointed when I gave it a cursory review this morning. I did not disagree with Cramer's placement of RF's CEO on his Wall of Shame, just in the numerical order of its placement. AFTERNOON COMMENTS: 6/23/09/ SOLD NESTLE & BOUGHT BRKB The loss for the quarter was 244 million or 28 cents. The bank set aside triple the amount for credit losses than it did in the year earlier quarter. For those who believe a broker is protecting their interests, this story about an SEC complaint against Morgan Keegan is worth a read. WSJ.com Morgan Keegan is owned by RF. This is a link to a story about a couple of Morgan Keegan's bond funds that crashed due to big bets on exotic securities: Kiplinger.com So why did I buy 50 at around $3.5. Well, it is a lottery ticket and eventually I figured the Board of Directors would actually try to do their job and clean house. Cramer may however be right in stating that there must not be a Board of Directors at Regions. (see video: CNBC.com) Anyway, when the Board decides to do what needs to be done with the top layer of management, then the bank at least has a chance to recover, and possibly even prosper some during the next economic recovery in my opinion. But, patience will have to be on the extreme side with RF. Maybe I will show my confidence in C. Dowd Ritter by buying 30 shares at less than $3.5, down from $43.6 in 1998. Or maybe not. Even one of Ritter's acolytes on the Board would have to admit this is one ugly chart: Chart

6. CIT Bonds: These bonds are swinging wildly in price. The 1 bond that I own maturing in December 2009 fell over 10% in value to around 50 assuming the third party price is anywhere near correct. I would be surprised to receive par value at maturity for that bond or the 1 bond maturing in March 2010. The last price is close to where the bond is currently trading. The fluctuation in price intra-day is just wild. Maybe, when I have that queasy feeling about a company, like I did when I bought those CIT bonds in 2007, a better alternative might be to buy none, rather than just reducing my buy to a nominal amount.

The buy earlier this morning of VIS represented a course correction in what I planned to do with the proceeds from the BRK/B transaction. Even though I do not own MMM now, I read its earnings report this morning, and had a favorable view of it. Who knows whether it will turn out to be right or wrong, but it appeared to be the reasonable to replace BRK/B with a stock ETF rather than more bonds which is what I intended to do.

The magic coin said that I can not sell EBAY today. Bought 100 PMK/EBAY and Eric Savitz

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