I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. In these posts, I am acting as an unpaid financial journalist and an occasional political commentator. I am also aggregating financial news stories that I view as important and providing any reader of these posts, assuming there are more than a couple, with links to those articles, sort of a filtered, somewhat intelligent, free search engine. Any discussion made by me of particular securities is not a recommendation to buy or to sell. Trade at your own risk. Consult with your financial advisor prior to making any purchase or sale. I will try to identify my sales too but it may take a few minutes after I implement them to create a post explaining my reasons. The sale may before or after the post. Before buying or selling any stock, even one recommended by a trusted financial advisor, please research it and make up your own mind which is what I always try to do. Research would include reading reports, reviewing financial records, earnings estimates, sec filings and prior earnings releases and news. In this post, and all others by me, I am merely describing my reasons for purchasing or selling securities, and the potential pitfalls that I identified prior to purchase or the reasons for a sale. The securities mentioned in this and all posts written by me may not be suitable for others based on their unique financial position and risk profile. Always read the prospectus before buying a Trust Certificate, bond, preferred stock or other bond or bond like investments. Information contained in my posts has been obtained from sources believed to be reliable but cannot be guaranteed. These posts by me do not constitute investment advice, nor shall they be construed as a guarantee of future results, or as an offer of any transaction in securities.
Monday, December 22, 2008
Maguire Properties/WAG/Goodyear Tire TC xkk/GE
I have been playing with PhotoBooth on my IMAC and I just took another picture for display in my profile. I am trying to figure out now how to alter the photo to give me more hair. I thought of using a photo from high school, a 1969 senior class photo from Peabody Demonstration School in Nashville (now the University School of Nashville), when I still had a nice head of dark curly/fluffy hair.
Maguire Properties may be the first REIT to suspend payments of its cumulative preferred stock dividends. Yahoo! Finance This REIT is an owner of high end office properties in Southern California principally in the Los Angeles area. I have never owned the common or the preferred securities issued by Maguire. I started to look at the MPGPRA a few months ago but passed on it due to this REIT's high debt levels. The problem with this REIT is that it bought nearly 3 billion in property at the highest prices last year, increasing its size by 40% and taking on about 2.5 billion in debt to finance the transaction. This was a colossal mistake. Possibly, the REIT may make it but I decided a few months ago that this was not the likely outcome. The preferred stock is down 50% this morning to $1.15. I am not going to take it off my monitor list. Sometime next year it is conceivable that circumstances may change sufficiently to take an extremely small gamble on it. Now, it is not worth it to me to buy 100 shares at 1. This issue is a cumulative preferred with a $25 par value and a 7.625%. (this is a very large file of over 400 pages: Maguire Properties, Inc. Form 424(b)(4) Cumulative simply means that the suspended dividend is still a legal obligation unlike the eliminated common stock dividend. Each missed preferred dividend will accumulate without interest. In the event Maguire recovers outside of a bankrupt court, and starts to pay common stock dividends in cash, then the skipped preferred dividends will have to be paid in full prior to the payment of common stock dividends. If bankruptcy happens, then the unpaid preferred dividends are lumped with the other unsecured junior obligations, falling behind in priority to senior and secured debt. The market is saying now that the preferred stock has almost no value. There are tax issues of buying a preferred issue where the company has suspended dividend payments which makes them inappropriate for ownership in a taxable account.
Walgreens issue a disappointing earnings report for its fiscal first quarter earning just $.41 versus $.46 a year ago. WSJ.com
Notwithstanding this earnings miss, I do not plan to sell my 50 shares and will stick with my entry points for adding additional shares discussed in a prior post. SARAH and the Cook Inlet Beluga Whales/WALGREENS AND REFINERS
I am surprised that others are surprised about Toyota's outlook. Yahoo! Finance
I may add another 5 to 10 thousand to my long corporate bond position, but many of the obvious buying opportunities in the TC market have disappeared, and some to intermediate term bonds. I intend to invest the redemption proceeds in the short bonds maturing in 2009, three in total, to increase my current under allocation in stocks.
I am going to look at adding to my position in the Goodyear Tire TC, XKK, which yields more than 16% at its current $4.92 price, which is 50+% below its $10 par value with an 8% coupon. While Goodyear will certainly be hurt by the recession, it is also benefiting by the rapid fall in energy prices. Tires are after all largely composed of petroleum based derivatives such as synthetic rubber and carbon black. Until now, the company has remained profitable but a few quarters of losses are probably in the cards.
The underlying bond has a lower coupon than the TC, 7%, and both the TC and the underlying bond matures on 3/15/2028.
http://www.sec.gov/Archives/edgar/data/829281/000095011001500449/e86458_424b.txt On 100 shares at 5, this would be $500 representing the difference between cost and par value in about 19.3 years or $25.9 amortized on an annual basis or an additional 5.18% a year. The underlying bond quotes can be found at FINRA. FINRA - Investor Information - Market Data - Bonds - Bond Detail Since the TC pays 1% more, it theoretically should be selling at a higher price than the underlying bond for that reason alone. I sold 100 XKK recently in an IRA at $8.3 in September after the ex interest date and will probably add it back if I can purchase it at $4.5 or lower (a $4.5 cost juices the current yield to 17.7% and to 20% at 4, while also increasing the potential gain at maturity of course). Even though this is relatively small, I try to tread carefully with more speculative bond positions in a retirement account. I am consequently in no hurry to buy, and I have just placed a GTC order to try and clip somewhere close to a buck off the current price of $4.91, and will likely leave it in effect at least for the next 30 days. This one has had a tendency in the past to do a meltdown during periods of individual investor stress.
The XKK is a junk rated senior bond and these positions have to be insignificant for me under my investing philosophy. I will also give them more leeway for price deterioration in part due to the small size of my position but also due to the recognition that this is a very stressful time for junk rated debt. A similar approach is being followed, for example, for the Hertz senior bond contained in the TC DKR which I have discussedHERTZ BONDS: FitchTRUST CERTIFICATE HERTZ BOND DKRHERTZ BONDS. I am back to close to even on my buy, with 1 interest payment received, and a little closer to my main pay day for this position which is 2012. The position is small and consequently I am more willing to hold it for a potential 100% annualized gain to maturity provided Hertz pays the bond in full at maturity.
I have been very critical of my decision to buy back into General Electric after selling my entire position earlier in the year at a nice gain.
The recent guidance given by GE was far from reassuring. Seeking Alpha
Nor does it help that S & P has put GE on its watch list for a possible downgrade. MarketWatch I was very concerned about the position after GE announced its deal with Buffet. I am aware of all of the negativity surrounding GE and particularly GE Capital, some of which is expressed in this article. Seeking Alpha
However, I also remember what happened the last time GE was selling at a price to yield almost 8%. Do not hold me to these figures for it was a long time ago for an old man to remember back, since the year that I am thinking of is 1982 before the start of the long term secular bull market. I remember calculating a few years ago what the dividend yield would have been based on the original cost from a 1982 purchase, after numerous raises in the dividend by GE since 1982, and the yield was over 30% based on the original cost (that calculation was made close to 10 years ago and has not been updated). So, in spite of my very serious misgivings, I have just added to my existing position in the 15.80s with some of my cash flow from this month, since I know that I would kick myself later in the event GE maneuvers out of its current jam, does not cut its current dividend, and resumes dividend increases in 2010 or 2011. Any buy now of a common stock will have to be with strong hands, with absolutely no need for the cash used for the purchase or any possibility of a forced and premature sale, and a probable minimum holding period of five years with all of the patience and forgiveness that I can muster. For now, I am continuing to reinvest my dividend into more GE shares. I really expect 8000 on the Dow to be breached again with a retest of the November lows a lot sooner than we will be looking up north of 9000. The cash flow for December is unusually large partly due to mutual funds declaring capital gain distributions that I am taking in cash for many of them.
This article on the VIX is worth a read. Yahoo! Finance