Wednesday, April 1, 2009

BOUGHT SNY/ SOLD 1/2 JZV: Risk Management/CEO Compensation/ING Finalizes Deal With Dutch Government/American General Finance/

Sanofi-Aventis (SNY) fell this morning below my limit price for the unfilled order from yesterday so I did a market order to buy 50 shares which was filled at 27.43. I will add another 50 if it falls near 25. Otherwise, I may add Novartis on further weakness.

SNY has recently been trading in channel pattern between 25 to 30.  The current consensus estimate is for earnings at $4.2 in 2009 and a slight decrease in 2010 at $4.15. 

This would give the stock a forward P/E of less than 7. The current price is even near its book value. One problem is that its major drug Plavix is subject to generic competition in Europe.  The company does have about 60 compounds in Phase II or III trials.  Its diabetes drug Lantus posted 25% year over year growth in the last quarter. An FDA panel recently recommended 10 to 3 the new drug Multaq for atrial fibrillation with limits on its use. UPDATE 3-US FDA panel backs Sanofi heart drug with limits | Markets | Markets News | Reuters FDA panel backs Sanofi drug to treat heart rhythms - Yahoo! Finance  Other major drugs include Ambien, Allegra, and Taxotere. Another one of its drugs Acomplia, which was thought to be promising initially, had to be withdrawn due to side effects.  Another negative is Obama and the Democrats. The company has a thriving vaccine business with net sales in 2008 of 736 million Euros. The dividend yield is currently around 6% based on the current quote. Value line has it rated 1/1. Morningstar has it at five stars. The Sanofi purchase is not being funded out of the cash allocation, as previously discussed, but by the proceeds of the asset allocation shift out of an overweight short term bond position. 

I also sold 1/2 of my position in JZV at 14.07 using a market order.  The security subsequently traded above my sales price. This is a TC with a senior bond issue from CNA insurance company. This is a risk reduction move.  The shares sold today were my highest cost shares using FIFO accounting and were purchased at $12.5. Bought back 1/2 of JZV Position at 12.50/Buy 50 FVL in IRA The shares that are being kept were bought later at $9.93.  Buy of 50 JZV at 9.93/Movement in Aegon and ING Preferreds: More of A Reflection on the Human Psyche

I have not totaled recently my profits from trading this security, and the total interest payments received, but I am confident that I am well within playing with the house's money on it. As previously stated, I will trade this one frequently since I view it as one of my least favorite senior investment grade bonds. Most likely, due to the yield at  a $9.93 cost and return from the spread between cost and the $25 par value in 2023, I will keep this one, at least until some extremely adverse corporate development happens or I can buy the 50 shares sold today back at less than $9, in which case I would sell the higher cost shares on another spike.   I am now holding the lowest cost shares in JZV that I have ever purchased using this particular trading strategy.  

Job losses are likely to continue for several months.  The ADP report for March was released this morning and it showed a record 742,000 private sector job losses.  The February job loss number was revised up to 706,000. \ ADP Reports 742,000 Private-Sector Job Losses - WSJ.comGrim ADP Report Clips Stocks -

Before this is over, I would anticipate the unemployment rate to rise to over 10%.

ING and the Dutch government finalized their agreement where ING transferred to the government the entire risk of 80% of its Alt-A mortgages held by ING Direct and ING Americas at a discount of 10% to par value.  This arrangement was discussed in a prior post. Pfizer: Wyeth acquisition as more proof of Pfizer's failures/CAT/Mexico's Drug Cartels/ ING news

I viewed this deal as positive when it was first announced for ING, and also for my positions in two of its equity preferred issues. 

R. Alan Stanford, formerly number 205 on the Forbes' list of the richest AmericansThe 400 Richest Americans: #205 R Allen Stanford -, denied that he committed a massive Ponzi scheme and says he needs money to hire a lawyer to defend against the bogus criminal charges filed against him.  

Cramer was complaining about the 17 million dollar pay package to Irene Rosenthal, CEO of Kraft, in return for "doing nothing". Cramer's Stop Trading! CEO's Pay Increase Is a Load of Kraft (3/31/09) -- Seeking Alpha

Sometimes, I wonder whether a company like Kraft could randomly select a person out of the Nashville phone book, offer them a hundred grand a year to be Kraft's CEO, and be no worse off than the present state of affairs.  Some believe that the current managers of America's  corporations are worth pay packages 400 times greater than their average worker, up from 50 times in 1980.

Judging from what I see, forty times an average worker's pay is probably too much for the results actually contributed by the executives.

I did see something that was extremely rare in a press release this morning.  A small company called Opnext announced that it was cutting executive and director compensation by 10% after announcing a further workforce reduction. This is so rare that it would be like me going into my backyard, digging a hole at random and then finding an oil gusher like Spindletop.  

For anyone who has the misfortune of owning a bond issued by the AIG subsidiary American General Finance, the company managed to file its annual report with the SEC yesterday The company had a net loss for 2008 of 1.345 billion. I did notice some statements in this filing where the company claimed to have enough funding to make it through 2009. I have 2 bonds maturing in September 2009 that are now priced at around 45, having been as low as 15.  Possibly, if I am a little lucky on this one, I will actually get my $2,000 back.    

  I am not a financial advisor but an individual investor trying to navigate my way through a difficult market. I have never worked for a financial institution and never will.  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.  By way of example, it is unlikely that I will ever need the funds contained in my retirement accounts. 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.   All content in these posts is provided for informational and entertainment purposes only, and it is a form of entertainment for me. 

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