Monday, March 25, 2013

Update on Lottery Ticket and Regional Bank Basket Strategies/Sold 100 XIN at $5.82/Bought LT Basket: 100 CIDM at $1.55 & 40 AUQ at $6.55/ Sold: 50 NYCB at $14.25, 51+ FIBK at $19.33 and 100 MNRK at $10.59/FNFG HBAN FOE WASH

I am updating the tables for the Lottery Ticket Basket and the Regional Bank Basket Strategies on the last Monday of each month. The prices shown in the following tables are from last Friday. 

My basket strategies will have a large number of securities in them. The focus is on the overall return of the basket rather than on any component.

1. Update for Lottery Ticket Basket Strategy:

The Lottery Ticket Basket Strategy uses a deep contrarian value strategy, appropriately characterized as catching a "falling knife". A common criteria for the stocks contained in this basket is a smashed stock price at the time of purchase and an ugly looking chart. Any technical analyst would most likely have a sell rating on the stock.

Selections are made primarily on statistical criteria including price to book, price to sales, forward P/E, cash per share and/or free cash flow. I spend anywhere from thirty minutes to an hour researching a potential purchase prior to purchase.

For many selections, I may be pessimistic about the firm's future, but not as pessimistic as the market. I will also occasionally see a ray of light at the end of a dark tunnel. Since I expect failures, which are inevitable and unavoidable in this kind of approach, I limit my exposure to $300 per stock plus any prior trading profits. 

After experiencing some success with this strategy, I now have a requirement that my total investment in all LT holdings can not exceed my total realized gains for this basket strategy. My total exposure is currently under $8,000.

Snapshots of realized gains and losses can be found at the end of Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

Realized Gain To Date: $12,383.71


Lottery Ticket Basket as of 3/22/13
As of 3/22/13, the largest unrealized gains include Datalink at +52.65%; Forest City at +47.32%; Alumina at +35.64%; Susquehanna at +34.54%; BNC Bancorp at +34.32%; National Penn at +31.93%; and Qlogic at +30%. 

I sold last month several gainers that were discussed in the last update. Those gains are now included in the realized gain total, increasing that amount by $430+. Stocks, Bonds & Politics: Updated Tables Regional Bank Basket Strategy and Lottery Ticket Basket Strategy/Lottery Ticket Sales: 50 TTI at $9.97, 50 RRST at $7.78, 30 SMA at $10.81, 40 BRKS at $9.71/Bought 50 BANC at $11.3 (2/25/13 Post).

I promoted KeyCorp and Huntington from the LT Basket to the Regional Bank Basket a few weeks ago. The LT purchases of KEY and HBAN are now included in the regional bank basket table.

The leading LT loser is Velti at -75.39%.

Sutor is my remaining Chinese micro cap after I realized a 100+% gain on XIN, discussed below. For whatever it is worth, Zacks recently upgraded Sutor to a strong buy. I am down about 33% on that one. I still consider SUTR to be a Lottery Ticket and have no interest in adding to my negligible LT position.

Given the small amount of money devoted to each selection, I can hold my losers forever, assuming the company can stay out of  bankruptcy, and I have had many come back from steep losses.

A. Sold 100 Xinyuan Real Estate at $5.82 (see Disclaimer): I keep mentioning XIN in my monthly Lottery Ticket update since it was making a strong up move. Earnings were released on 2/27/13 and the stock popped again. The shares closed at $5.05, up $.55 cents or 12.3% that day. I took a snapshot of my 100 shares position after the close on 2/27/13:

100 Shares XIN as of 2/27/13
The shares continued to move up on 2/28/13, a down day for the market: XIN: $5.47 +0.45 (+8.96%).

That rise put my unrealized gain over 100%.

This article at Seeking Alpha discusses the earnings report.

I left a comment to that article which did not say much. Another reader left some comments with links to videos about China's ghost towns. I had watched one of those about two years ago. He also mentioned that 60 minutes was about to run a story about the bubble in China's housing market and the ghost towns.

I then went to CBS and watched the promo for the show. He was right so I decided to jettison the XIN position.

SOLD 100 XIN at $5.82

Besides I do not want to be a pig when my long term gain is already over 100%:

2013 XIN 100 Shares +$310.13
This is a link to the 60 minutes program that aired that Sunday: China's real estate bubble - 60 Minutes A transcript of this broadcast can be found at CBS News.

The speculative building in China surpasses by far anything previously seen in history. Whole cities are being built with few inhabitants, empty malls and multi-lane highways with no traffic at rush hour. The apartments are being sold to middle class families who are buying them for "investments", frequently using their life savings to make a purchase.

In an interview with CNBC, Jim Chanos highlighted the 60 minutes story to justify his short positions in companies related to China's construction.

XIN is diversifying its real estate holdings by buying land in the U.S.

The issue raised by the 60 minutes program is far broader than the valuation of China's real estate companies. Would any investor accept U.S. GDP numbers if those numbers were materially influenced by ghost towns being built in Kansas and Nebraska? China's GDP needs to be adjusted down for the expenditures on these projects.

Friday's Close: XIN: $5.06 -0.16 (-3.07%)

(B) Ferro: A. Schulman offered to acquire Ferro for $6.5 per share, half in cash and half in Schulman shares (SHLM) The offer was based on publicly available information and "could be adjusted" after due diligence. Ferro rejected the offer.

Ferro shares surged on 3/4/13 after public disclosure of this development: FOE: 6.80 +1.60 (+30.77%)

After Schulman announced its offer and Ferro's rejection, Ferro reported another dismal earnings report.
SEC Filed Press Release

Headknocker noted that the surge was good since it took him back into profit territory by a couple of bucks, which is better than being kicked in the groin, but would have preferred for Right Brain to buy the shares at $2.38, the 52 week low reached intra-day on 11/16/12 (FOE Historical Prices) and wonders why the RB failed to buy the shares at that moment in time.

Left Brain was quick to agree with our Dear Leader HK; it is after all sad that a 31% rise in a stock price barely brings HK into profit territory. This kind of event happened earlier when HK realized a loss on the LT Big Band Networks even after it rose 70% in response to an acquisition offer. Sold 50 of LT BBND at $2.21

"You win some, you lose some, get over it," a voice was heard to say.

Bought 40 FOE at $6.32

Friday's Close: FOE: 6.72 -0.03 (-0.44%)

C. Bought 100 CIDM at $1.55 (see disclaimer):



I was slightly intrigued by this leveraged micro cap after seeing a news story that Prospect Capital had participated in its recapitalization. I own PSEC, a Business Development Company and have it listed in a Yahoo Finance portfolio of "main" positions which has over 200 names in it. I currently own 478+ PSEC shares with 100 of those owned in the ROTH IRA.

Anyway,  I open that portfolio several times a day and YF shows recent news stories about companies in that list. I noticed this story filed under PSEC in that list. Prospect Capital Provides a $70 Million Term Loan to Support the Recapitalization of Cinedigm. I then decided to check out Cinedigm Digital Cinema (CIDM) in more detail.

This was an usual way for me to find a LT selection. Usually, I use stock screens to find companies unknown to me. Some selections are well known and have just fallen on hard times.  

For lottery ticket purchases, I am not going to spend much time investigating a possible purchase, when the maximum exposure is $300 plus any prior realized gains.

CIDM claims to be a leader in the digital entertainment revolution with its "pioneering digital cinema deployment and servicing efforts, and the state-of-the-art distribution and exhibition software". The company also has a library of over 18,000 movies and television episodes (documentaries, low budget independent films, etc).

I then read a very long and detailed stock report on this company published by Seeking Alpha. I would simply refer anyone interested to that article. My next stop was a review of the last earnings call transcript published by Seeking Alpha. Lastly, I read the earnings press release for the last quarter, CIDM's fiscal third quarter ending 12/31/12: SEC Filed Press Release Revenues rose 17% to $23.2 million with a loss per share of $.03, down from a ten cent loss per share in the year ago quarter. CIDM's total domestic digital screen deployment totaled 11,697 with 269 exhibitors, with 835 screens installed in the fiscal third quarter. For this line of business, the expansion opportunities appear to be overseas.

The company also releases two low budget films theatrically during the quarter, and distributed 2830 hours of film and digital content to "more than 22 digital partners".

CIDM-12.31.12-10Q

The company is highly leveraged for its size and existing revenue streams. There is also always the possibility of a competitor emerging with better products and/or lower cost services. The company is not yet profitable but is at least moving in the direction of profitability. All of those risks suggested to me that this position had to be, for now, categorized as a Lottery Ticket.

Friday's Close: CIDM: 1.53 +0.01 (+0.66%)

D. Bought 40 AuRico Gold (AUQ) at $6.55 (see Disclaimer): I am near the end of my gold mining stock purchases. All of those purchases will be assigned to my high risk Lottery Ticket and Flyers strategies which by definition severely limits my monetary exposure.

2013 Bought 40 AUQ at $6.65
AuRico Gold sold its Ocampo mine for $750M last December and bought back $300 million in common shares earlier this year. During the 4th quarter, the company produced 41,146 ounces of gold and anticipates 2013 production from its Young Davidson and El Chanate (Mexico) to be between 190,000 to 220,000 ounces. The operating cash cost is estimated to be between $540-$620 per ounce. The "all-in" cash costs is estimated to be between $1,100 to $1,200 per ounce. The company defines "all-in" costs to include "cash costs, sustaining capital, corporate general and administrative expense and exploration expense".

AuRico recently started to pay a quarterly dividend of $.04 per share.

AuRico Gold - Operations - Young-Davidson

AuRico claims to have mines with relatively long lives:



(snapshot from AuRico Gold - Investor Information - Presentations - Corporate Presentation)

For whatever it is worth, AuRico was a Fred Hickey pick in the 2013 Barron's Roundtable. The price was then $8.08. He argues that "AuRico is one of the cheapest gold stocks you can find". The Young Davidson mine has a reserve life of 21 years, while El Chanate has about 7 years left. Hickey claims that there are upsides to both, and AuRico has a "potentially major project in British Columbia".

The current consensus E.P.S. estimate is for $.39 in 2013. AUQ Analyst Estimates I would not pay much attention to that number given the volatility of the gold price. Price to book is shown at .8 at AUQ Key Statistics based on a $6.67 stock price and data as of 9/30/12.

One reason for labeling AuRico a Lottery Ticket can be found in this article published by Motley Fool that criticizes the company for selling some mines. Another reason is its relatively high all-in costs compared to other miners recently purchased as part of the Flyer's strategy, including one that will be discussed in the next post which has dramatically lower all-in costs and was consequently bought as part of the Flyer's Basket Strategy.

Stock Quote U.S. Exchange: AuRico Gold
Stock Quote Toronto: AuRico Gold

Friday's Close: AUQ: $6.64 -0.20 (-2.92%)

E. SuperValue (SVU): SUPERVALU completed the sale of Albertsons, Aceme, Jewel-Osco, Shaw's and Star Market Stores to a Cerberus led consortium. The consideration for the sale was the assumption of $3.2B in debt plus $100M in cash. Symphony Investors, another Cerberus led consortium, bought 42+M in newly issued SVU shares at $4 and completed a tender offer for another 11+M shares at $4. Symphony is now SVU's largest shareholder, owning approximately 21.2% of the outstanding stock.

What is left? SVU still owns over 1,300 Save-A-Lot stores and has a large wholesale grocery business that sells to over 2,000 independent retailers.

In my opinion, SVU is a better company now after shedding that $3.2B in debt, the capital infusion and the Albertson stores divestiture. The primary reason for its problems was the debt financed acquisition of Albertsons.

Friday's Close: SVU: $4.95 +0.27 (+5.77%)

2. Update for Regional Bank Basket Strategy:

This strategy is explained in the following post:

Stocks, Bonds & Politics: REGIONAL BANK BASKET STRATEGY GATEWAY POST

I am not tracking reinvested dividends in this table. The dividend yield showed in this table is calculated by Yahoo Finance based on last Friday's close. My dividend yield for each position will be different based on my total cost numbers. In most cases, with FNFG and VLY being notable exceptions, my dividend yield will be higher. Over the life of this basket strategy, I anticipate that the dividends will provide 40% to 50% of the total return. I am generally keeping my total exposure between $40,000 to $50,000. I did not have any additions since my last update.

Realized Gains 2010-To Date: $10,332.24
Dividends 2010-2012: $4,690.79

The unrealized total gain is more than $4,600+.


Regional Bank Basket as of 3/22/13

A. Sold 100 MNRK at $10.59 (see Disclaimer): Left Brain feels obligated to disclose that the Old Geezer, confused, muddled and addled as usual, barely able to form a coherent though except by accident or the grace of God, thought that he entered an order to sell Headknocker's entire position in Monarch Financial.

The OG had forgot that the stock had undergone a 6 for 5 stock split soon after he purchased 100 shares, which left Our Dear Leader Headknocker with 120 shares, not 100. So now our Great Leader owns 20 shares of Monarch Financial (MNRK).


I  bought these shares last November and realized a gain of $186.06, or roughly 21.5% on the shares.

2013 Sold 100 MNRK $186.06
Added Regional Bank Basket:  120 MNRK at $8.65 (bought 100 and received 20 more due to 6/5 stock split)

Profit taking was one motive. Another involves dividend yield. A key aspect of the regional bank basket strategy is to generate dividend income. MNRK's current dividend yield at a $10.59 price is less than 2%.

I was impressed with Monarch's 4th quarter earnings report, as noted in my last update for this basket strategy. (Updated Tables Regional Bank Basket Strategy: D. Monarch Financial Holdings)

The valuation is reasonable based on estimated 2013 and 2014 earnings at the current price. MNRK Analyst Estimates I may keep the other 20 shares for awhile, just to see whether I can sell at over $11.5 which would more than pay for another brokerage commission. The OG added that the foregoing may have been his plan all along, but doesn't remember.

Monarch completed the mandatory conversion of its Series B convertible preferred stock into common stock, issuing approximately 10.365M shares to the owners of those preferred shares. Form 8-K

Friday's Close: MNRK: 10.85 +0.03 (+0.28%)

B. Huntington (HBAN) and KeyCorp (KEY (both owned): Both Huntington Bancshares and KeyCorp received no objection from the Federal Reserve to their capital action plans. Both passed the stress test. KeyCorp raised its dividend to $.055, and its Board authorized the purchase of up to $426M in stock. Huntington raised its quarterly dividend by 25% to $.05 per share, and its Board authorized the purchase of up to $227 million in stock.

Both HBAN and KEY were initially purchased as part of the Lottery Ticket Basket Strategy and later promoted to the Regional Bank Basket Strategy.

Added 70 KEY at $8.77Bought 30 KEY at 8.75Added 40 KEY at $7.87

Added 40 HBAN at $7.04Bought 30 HBAN @ 7.25 as LTAdded 30 HBAN as LT at $4.8

C. Sold 51+ FIBK at $19.33-satellite taxable account (see Disclaimer): First Interstate BancSystem Inc. Cl A (FIBK) is the banking holding company for First Interstate Bank which has 72 branches in 42 communities in Montana, Wyoming and South Dakota.

EMail Confirmation
For most of my ownership period, this position was in the red. Recently, it has surged in price, moving from $13.52 in mid-November 2012 to a $19.34 close on 3/15/13. FIBK Interactive Chart At the current price, the dividend yield is less than 3%. The current consensus E.P.S. estimate is for $1.45 in 2013 and $1.56 in 2014. FIBK Analyst Estimates

I decided to harvest my profit.

2013 FIBK 51+ Shares +$175.18
Bought 50 FIBK at $15.64 (May 2010 Post)

Friday's Close: FIBK: $19.09 +0.08 (+0.42%)

D. Sold 50 of 200 NYCB at $14.25 (see Disclaimer):

2013 Regular IRA 50 Shares Realized Gain +$49.58
Those shares were bought in December:  Bought 50 NYCB at $12.94-Regular IRA

I have been trading NYCB in my regular IRA while keeping the shares owned in a taxable account. With this last trade, I have realized a total gain of $403.09 in that account.

2010 Regular IRA 50 Shares Realized Gain +$331.03
2009 Regular IRA 50 Shares +$21.28
I have also clipped several $.25 per share quarterly dividend payments.

I still own 150 shares in a taxable account. Added 50 NYB at $12.79 (2/7/12 Post); Bought 50 NYB at $11.3 (October 2009 Post); Added 50 NYB at $10.57 (October 2009).

NYCB is currently rated 3 stars by Morningstar, down from a 4 star rating when I purchased shares in November. Their fair value estimate is $14.

During my entire period of ownership dating back to October 2009, NYCB has paid a $.25 per share quarterly dividend, which was not cut during the last recession but has not been raised either, since the 2004 second quarter. New York Community Bancorp Dividend History The payout ratio is close to 90%.

A recent negative article on NYCB published at Seeking Alpha did not influence my decision to sell 50 of my 200 shares.

Friday's Close: NYCB: $14.17 -0.01 (-0.07%)

E. First Niagara (own): First Niagara is my largest loser in the regional bank basket due to the boneheaded decision to acquire HSBC branches for $1B in cash. To raise that money, FNFG had to slash the dividend by 50% and to sell a boatload of common stock at depressed prices, as well as other types of securities at prices disadvantageous to existing common shareholders. First Niagara: Just Another Incompetent Bank Board of DirectorsFirst Niagara Dividend SlashFNFG-Destruction of Shareholder Value

The CEO John Koelmel called this acquisition a "home run". A more appropriate baseball analogy would be a batter deliberately moving in front of a Nolan Ryan 100+ mile per hour fastball so that it would pop him in the groin.

The Board has finally decided to replace Koelmel, showing him the door with a $5.4 million severance package. Failure is rewarded in America. The severance package was apparently a reward for the shares losing almost 1/2 of their value over the past three years.

Ultimately, the Board is responsible for what has happened to FNFG's shareholders by approving the HSBC transaction, and all of the Board members who voted for that acquisition need to be fired also.

As previously noted, I do not expect the bank to recover quickly from Koelmel's mistakes. My current prediction is that the dividend will not recover to its pre-slash levels within ten years after the 2011 50% reduction. SEC Filed Press Release Announcing the 50% Reduction

A recent article published at TheStreet argues that FNFG shares "may be a strong turnaround investment" and "may be undervalued" after Koelmel got the boot.

Friday's Close: FNFG: $8.88 +0.07 (+0.79%)

F. Washington Trust (WASH): Washington Trust Bancorp increased its quarterly dividend to $.25 per share from $.24, the third dividend increase over the past 12 months.

Bought 100 WASH at $15.26 (January 2010)-Sold 50 of 100 WASH @ $22.44

I currently own 50 shares, part of the 100 share bought at $15.26.

50 Shares WASH Unrealized Gain as of 3/22/13=$767
2011 50 Shares WASH Realized Gain 50 Shares=$347.03

At a total cost of $15.26, the dividend yield based on a $.25 quarterly dividend would be 6.55% for the remaining 50 shares. If I was to lower that cost by the prior realized gain of $347.03, the yield becomes 12.02%.

Last Friday's Close: WASH: $27.88 +0.17 (+0.61%)

G. Largest Unrealized Gain in Regional Bank Basket:  My largest unrealized gain in this basket is 155+ shares of Renasant (RNST), held in a satellite taxable account:

155+ Shares RNST Unrealized Gain as of 3/22/13=$1,260.83.
Renasant is headquartered in Tupelo, Mississippi.

Bought 50 RNST at $14.14Bought: 50 RNST at $13.70Sold 50 RNST at $14.91Added 50 RNST at $15.85

As noted in Item # 4 RNST (Oct. 2012 Post), I had bought 50 shares at $13.85 in September 2011 with no write up  (see snapshots). 

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