Monday, May 27, 2013

Update for Regional Bank and Lottery Ticket Basket Strategies/Sold LT Basket Strategy: 50 SIMG at $5.41, 30 BYD at $12.68, 40 BNCN at $10.02, & 35 DTLK at $10.93/SUTR, KEY, BHLB, BHB, PCBK, MNRK, UMPQ

The weekly post will be published on Wednesday. I have barely started writing it.

Both the Regional Bank and Lottery Ticket Basket strategies are updated 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 $7,000.

I am not finding much of anything to buy in this basket, other than gold mining stocks, but they look to hot to touch.

The name of the strategy aptly describes the risk. It is somewhat analogous in many cases to playing a hand of blackjack for the purchase amount knowing that the card count favors the house. It is a form of entertainment and an alternative to a casino visit. Based on the results to date, this strategy is far more likely to produce positive results even with the LB's skill at the tables. The primary purpose of the LT strategy is to entertain Right Brain, let it swing for the fences with up to $300, and keep the Nit Wit from interfering with Left Brain's management of Headknocker's portfolio.

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

Realized Gains To Date: $12,641.2

The total current investment is less than $7,000. The leading unrealized gain is in Forest City. The leading loser continues to be Velti.


Lottery Ticket Basket as of 5/24/13
A. Sold 40 BNCN at $10.02 (see Disclaimer): I simply decided to harvest a good percentage gain in this small N.C. based bank.



2013 BNCN 40 Shares +$101.33
Bought 40 BNCN at $7.09 as LT

May 2013 SEC Filed Investor Presentation

‎Q/E 3/31/13 10-Q

Closing Price on 5/24/13: BNCN: 10.75 +0.07 (+0.66%)

B. Sold 50 SIMG at $5.41 (see Disclaimer): It is okay to buy a stock in the LT strategy even though there is at best a woefully inadequate understanding of the firm's products, which is the case with SIMG for me. The selection can solely be based on statistical criteria. The stock rallied some after SIMG's recent earnings report, where the company reported a 13% Y-O-Y increase in earnings, a $.01 per share GAAP loss and a $.04 per non-GAAP profit. SEC Filed Press ReleaseEarnings Call Transcript - Seeking Alpha. SIMG beat the consensus forecast for earnings and revenues. The stock did rise some after that announcement so I sold it.

I am from the old school, so I find it difficult to become excited by a $.01 GAAP loss per share.

I will use not use non-GAAP earnings that simply exclude recurring expense items such as stock options. I will use non-GAAP where the GAAP earnings took a one quarter hit from an item such as merger related expenses. An example would be the recent earnings release from Berkshire Hills Bancorp (BHLB) discussed below in the regional bank basket section. However, if there is a write-off later on from an acquisition, such as what HP routinely does, then I will look only at the GAAP numbers. I am not going to allow a company to focus my attention on non-GAAP earnings when write-offs are destroying shareholder value.

Snapshot of Trade:




Snapshot of Profit:


2013 SIMG 50 Shares +$38.09
Bought as Lottery Tickets: 50 SIMG at $4.33

That completes my second round trip for SIMG as a LT. Bought 50 SIMG at $2.19-Lottery Ticket-Sold SIMG at $3.37

C. Sold 30 BYD at $12.68 (see Disclaimer): Boyd Gaming owns and operates casinos. Profile | Reuters.com I mentioned in my last update of this basket strategy that BYD shares had popped after Morgan Stanley had upgraded the stock to outperform, with a $12 price target, and the company reported better than expected earnings. The adjusted E.P.S. number was 1 cent. The GAAP E.P.S. was a negative 8 cents per share. Hard for even the RB to get too excited by that report. Q1-2013 8-K For virtually the entire period of ownership, starting in November 2010, I had an unrealized net loss based on my $9.78 purchase price. The price had slipped on occasion below $6. BYD Interactive Chart I now have a realized gain of $71.09. Okay, it is not going to pay for my nursing home expenses.

Snapshot of Trade




Snapshot of Profit:


2013 BYD 30 Shares +$71.09
Bough 30 BYD at $9.78 as an LT

Closing Price on 5/24/13: BYD: 12.60 -0.15 (-1.18%)

D. Sutor Technology (SUTR): Sutor is my only remaining Chinese small cap after I successfully exited Xinyuan Real Estate. Sold 100 XIN at $5.82 For a long time, I was in a deep percentage hole with my 100 share position until the stock started a 100% move from a $.96 share close on 1/24/13 to its current price. SUTR Historical Prices A casual observer would naturally assume that a 100+% rise would at least bring me into profit territory which would not be the case with this stock. I have had other examples of larger gains in my Lottery Ticket basket which only narrowed my percentage loss. This is sort of an inherent problem in a falling knife strategy.

While I did manage to harvest a 100+% total return in XIN, it took a 100% rise in SUTR to bring me somewhat closer to break-even. I need another 100% burst, and it would probably be advisable to refrain from spending a profit on this position until I actually see one. Sa La Vie.

Bought 50 SUTR at 2.81 as Speculative LTADDED 50 SUTR at $2

The stock had managed to work its way back up to $1.72 on 5/10/13. Sutor released its fiscal third quarter earnings report on May 13, 2013 and the stock rose to $2.05 on that day, which does not sound like much, except that it is a 19.18% rise on a percentage basis. Subsequently, the shares have floated back down to near the pre-earnings close.

Sutor is a Chinese manufacturer and distributor of "high-end finished steel products and welded steel pipes"

Sutor Technology Profile Page at Reuters

Sutor Technology reported a 27% Y-O-Y revenue increase to $139.5M and a 233.3% increase in its E.P.S to $.1 per share.

Earnings Call Transcript - Seeking Alpha

Only one analyst provides earnings estimates. The estimate from that analyst is for an E.P.S. of $.36 in the F/Y ending in June 2013 and $.45 in the 2014 F/Y.

SUTR Key Statistics YF at $1.88 Price Per Share-Earnings Data as of Q/E 3/31/13
Forward P/E 4.18
Price to Sales= .13
Price to Book= .34
Cash Per Share=.46
Debt=147.22M
Book Value Per Share= 5.57

I would add that many American investors simply do not trust the accounting generated by Chinese companies, particularly the small ones. I have no opinion about SUTR's accounting and would not be qualified to render an opinion anyway.

Q/E 3/31/13 10-Q

Closing Price on 5/24/13: SUTR: $1.96 0.00

E. Sold 35 Datalink at $10.93 (see Disclaimer): Datalink provides data storage services. The description used by the firm has more words in it. Profile | Reuters

For the first quarter, DTLK reported GAAP E.P.S. of 6 cents, down from 12 cents in the year ago quarter. The adjusted non-GAAP E.P.S. was $.18, up from $.17.

I decided to harvest a good percentage gain.

Earnings Call Transcript - Seeking Alpha

Snapshot of Trade:




Snapshot of Profit:

2013 DTLK 35 Shares $104.49


Bought 35 DTLK at $7.49-LT Category October 2012

‎Q/E 3/31/13 10-Q

Closing Price 5/24/13: DTLK: 10.71 -0.08 (-0.74%)


2. Update for Regional Bank Basket Strategy

This strategy is explained in my Gateway Post on this topic:

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

I am not tracking reinvested dividends in the following 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.

Needless to say, the dividend yield for each position is higher than the 2.01% yield on the 10 year treasury as of last Friday's close. Standard Chart - WSJ.com Most of the dividend yields are higher than the 3.17% yield on the 30 year treasury (Standard Chart - WSJ.com), and many of these banks are raising their dividends. A buyer of that 30 year treasury bond with a 3.17% is stuck with that yield until the bond is sold.

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 mentioned in my last update that my RNST shares would likely not be around for this update. I did sell 155+ shares for a profit of $1,433.21, the largest gain in this basket strategy to date. Sold 155+ RNST at $23.9

The only new position since the last update was Access National (ANCX): Bought 50 ANCX at $12.11 (4/30/13 Post) All of my recent adds have been in micro caps with less than 200M market capitalizations, since I view virtually all of the larger banks to be either fairly valued or slightly overvalued based on forward estimated 12 month earnings. Most of these regional banks, including the best managed ones, have been suffering net interest margin compressions for several quarters Y-O-Y, a trend expected to continue until the FED ends ZIRP. E.P.S. is likely to either decline or increase slightly in 2013 and 2014.

Some of the banks in my basket may buck that trend due to the benefits flowing from recent acquisitions, but that remains to be seen. FMER, for example, recently completed a large acquisition and the consensus forecast is for an E.P.S. of $1.29 in 2013 and $1.42 in 2014. FMER Analyst Estimates The share price of FMER, however, has already moved up from a $15.55 close on 4/22/13, adjusted for the recent quarterly dividend, to $18.22 last Friday, a 17.17% spurt in slightly more than a month. The forward P/E on estimated 2014 earnings is 12.83 based on the $18.22 price, but the trailing P/E is 14.35. Generally, for well run banks, a trailing multiple of 15 is at the top end of my fair value range. There could be an earnings growth spurt when loan demand accelerates, loan losses stay at low levels and the net interest margin expands to normal market levels after the FED ends ZIRP.

Unrealized Gain FMER as of 5/245/13
The unrealized gain in my regional bank basket, after that RNST profit, is close to $3,850. Almost all of the positions increased some in value since the last update. Some of the leading gainers include FMER (+$174.2); FNFG (+$178.5); TRST (+$241.8); KEY (+$120.4); SYBT (+$112); MNRK (+$119); several up in the +$50 to +$100 range (e.g. BDGE, LBAI, BANC,WASH, VLY, PBCT, PCBK, TRMK, UMPQ); and importantly no significant detractors which is always important in a basket strategy. It obviously does not help to have six decliners canceling out the six top gainers.

The SPDR S & P Regional Banking ETF (KRE) closed at $31.01 on 4/29 and at $32.68 last Friday or a 5.38% gain, beating the 3.51% gain in the S & P 500 over the same period. My regional basket percentage gain was approximately 6.15% after taking out 50 ANCX, the 50 share add in WBCO from the following table and RNST from the prior one. The increase becomes 8.25% over this period when I include the dollar accretion in the RNST shares from $22.25, the price on 4/29, to the sales price at $23.9. but not including the accretion from the ANCX purchase and the WBCO add. I will do several times a year detailed calculations to compare this basket's performance against a regional bank ETF. Another factor is my dividend yield is much higher than the regional bank ETFs. The dividend yield on the SPDR S&P Regional Banking ETF is shown at 1.21%. Another one is slightly higher at 1.83%. iShares Dow Jones U.S. Regional Banks Index Fund (IAT) I have not calculated the regional bank basket yield at the current prices, but the composite yield would be over 4% (higher at my constant cost numbers)

Snapshots of trades can be found in the above referenced Gateway Post.

Realized Gains To Date: $12,295.02
Dividends 2010-2012: $4,690.79   (updated yearly)




A. Bar Harbor (BHB): Bar Harbor Bankshares reported first quarter diluted E.P.S. of $.81, up 1 cent from the 2012 1st quarter. The estimate, made by just one analyst, was for $.77 per share. BHB Analyst Estimates

A third party service calculated BHB's Texas Ratio at 9.19 as of 3/31/13, one of the lowest.

Bought 50 BHB at $30

Closing Price 5/24/13: BHB: 35.72 -0.18 (-0.50%)

B. Berkshire Hills (BHLB)Berkshire Hills reported "core" first quarter E.P.S. of $.54, up 20% from the 2012 first quarter core E.P.S. of $.45. Core earnings excludes "primarily" merger and integration expenses. Berkshire completed the acquisition of Beacon Federal during the last quarter. The consensus estimate was for $.55. BHLB Analyst Estimates

Earnings Call Transcript - Seeking Alpha

Bought 50 BHLB AT $21.66

Closing Price 5/24/13: BHLB: 27.07 +0.16 (+0.59%)

C. Pacific Continental: PCBK reported net income of $2.5 million for the 2013 first quarter which included $1.2M in pre-tax merger related expense connected with its recently completed acquisition of Century Bank.  SEC Filed News Release Adjusted E.P.S. was $.19, up from $.15 in the 2012 first quarter. The bank announced its regular quarterly dividend of $.09 per share and a special cash dividend of $.05 per share. The stock went ex dividend earlier this month. Pacific Continental Corporation Increases Regular Cash Dividend and Declares Special Cash Dividend for Second Quarter 2013 The bank has been declaring a special dividend, starting in the 2012 third quarter, and has raised the regular quarterly dividend by 1 cent per quarter since that time. Stock Splits & Dividends

Data as of 3/31/13:
Net Interest Margin: 4.29%
Adjusted Efficiency Ratio: 65% (excludes merger expenses)
Return on Average Assets: .7% (prefer over 1%)
NPA Ratio: 1.71%
Total Risk Based Capital Ratio: 16.62% (well capitalized 10%)

Added 70 PCBK AT $9Bought 30 PCBK  at $9.42

Strong Buy - May 6, 2013 - Zacks.com

Closing Price 5/24/13: PCBK: 11.50 -0.05 (-0.43%)

D. Keycorp: The KBW bank analyst does not believe the run up in Key's stock price this year is warranted based on comparative valuations. KeyCorp Run-Up Is Unjustified, Says KBW - TheStreet

KeyCorp increased it quarterly dividend rate by 10%. Before that excites anyone, the raise was to $.055 per share and KEY had a quarterly dividend of $37.5 for the 2008 second quarter that was cut in stages to one cent per quarter by the 2009 second quarter. KeyBank

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

KEY: 10.66 +0.03 (+0.28%)

E. Monarch Financial: Monarch Financial announced a 20% increase in its quarterly dividend to 6 cents per share.

I currently own 100 shares and have booked one gain of $186.06.

Bought 120 MNRK at $8.65 (thereafter split 6 for 5); Sold 100 MNRK at $10.59Bought 80 MNRK at $9.97

Closing Price on 5/24/13: MNRK: 11.25 -0.03 (-0.27%)

F. Umpqua: Possibly, this is not the best possible name for a bank. Umpqua Holdings Announces Special Dividend and 50% Increase in Quarterly Dividend The new quarterly dividend rate will be 15 cents per share. The special dividend is $.05 per share.

Umpqua is at least moving back to its regular quarterly rate of $.19 per share that was in effect in 2008 before it was slashed to 5 cents per share in the 2008 4th quarter. Umpqua

Closing Price on 5/24/13: UMPQ: 13.60 -0.01 (-0.11%)

G. Valley National (VLY): Valley is now my largest dollar loser in this basket, and a weak hold based on forecasted earnings for 2013 and 2014. Valley National did declare its regular quarterly dividend of $.1625 per share. The payout ratio is slightly over 100%.  Valley National Dividend Information I have not reinvested the dividend to buy more shares.

The last earnings report was a disappointment. The bank reported an E.P.S. for the 2013 first quarter of  16 cents per share, down from 18 cents in the 2012 first quarter. Given the sluggish earnings, I would not be surprised by a dividend cut unless earnings growth can be restored relatively soon.

The unrealized loss is close to $850. VLY has issued 5% stock dividends during my ownership period. I see no reason whatsoever for stock dividends or splits on a stock trading in the single digits.

Shareholder and stock NYSE VLY information - Valley National Bank

Closing Price on 5/24/13: VLY: 9.27 +0.07 (+0.76%) 

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