Thursday, May 7, 2009

Bought 100 ZBPRA at $7.8/Corrections Corporation Earnings

I would agree with the Morningstar's analyst this morning who was concerned about Pepsi increasing bids to acquire the bottlers.  It would be fine with me to just walk away from the acquisitions, but that is not what is likely to happen next. Pepsi will raise its price to the level where it becomes at best a marginal deal for its current shareholders. The bottlers were separated because their returns on capital were lower, being more capital intensive than just manufacturing the liquid and selling it to a captive distribution network responsible for bottling and retail distribution.   

LB had some business to transact before starting its training for the game tomorrow. I noticed one floater at the QuantumOnline site which was unknown to me.  It is an equity preferred  issued by Zion's BancCorporation (ZB). LB was barely familiar with this bank, knowing just that it had had some problems during the current credit crunch, a matter easily confirmed by reading its last earnings release.  I just bought 100 shares of ZBPRA earlier this morning with a limit order at $7.8. 

This floating rate equity preferred is NOT cumulative, always a bad thing. It has no maturity-a much worse bad thing. It was a security issued by a bank currently under financial stress-yet another bad thing, so three strikes and your out.  Except in this case, the par value is $25, the discount to par value at the $7.8 price is consequently large,  and the bank has recovery potential.  The float is the greater of 4% or .52% above the 3 month LIBOR. For these kind of securities, the 4% is a good guarantee and the .52 is below average. The 4% is the applicable rate now. If Zion's continues to pay, that will generate a yield of 12.82% at a total cost of $7.8. This  is an easy calculation to do with a 4% yield and a $25 par value, the dividend will be $1.  The yield will go up more if the Libor portion of the float becomes the applicable rate, which will happen only when that computation exceeds 4%. A cost substantially below par value juices that yield also. As with all floaters, the float provision provides a measure of inflation protection, at least when a rise in inflation causes a rise in the short rates which is what one would generally expect, and the guarantee provides a deflation protection component particularly when the security is bought at a large discount to par value.  Having said that I was not going to pay more than I just did to buy ZBPRA because of the risks. And the modest amount invested is the other way to control risk in this type of situation.    

I found this one in the equity preferred section of QuantumOnline in the section of preferred stocks paying qualified dividends, page 5. This is relevant to a high income person. 

This is a link to the prospectus: www.sec.gov 


Whenever I talk about a preferred stock issued by a bank or an investment bank, it is important to emphasize that that type of security would be most likely worthless in the event of failure, worth nothing, as is the case with the Lehman equity preferred issues. That is why I tip toe into them.

One of the stocks bought with cash flow in the 4th quarter of 2008 was Corrections Corporation, a local Nashville based company.  

This is a link to some of earlier discussions:

I still own the shares and do not anticipate selling at below 20. 


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  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 readers of these posts 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.  It is always important to follow the investment process. the investment process/links to further information on canadian energy or royalty trustsInvestment Process Part II: Bonds and Bond Like Investments   NOT A RESEARCH SERVICE/Add of PWE Last Week   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.  Anyone interested in a topic may want to review all discussions contained in the blog about it by using a relevant search term in the box at the top. Opinions are subject to change and they certainly evolve over time as information is assessed and analyzed for compatibility with prior opinions, the only process for a serious investor, and a topic of frequent discussion in this post.

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