Friday, September 4, 2009

BOUGHT 100 PG AT $52.85/SOLD 100 KROGER AT $21.9/BOUGHT ACTION SEMICONDUCTOR AT $2.21-LOTTERY TICKET

1. Bought 100 Action Semiconductor at $2.21- Extremely Speculative Lottery Ticket (see Disclaimer): This is my second small Lottery Ticket purchase of a Chinese semiconductor maker, with the other one being Vimicro International at $1.97. Lottery Ticket Purchase 100 of VIMC: EXTREMELY SPECULATIVE At the time of that purchase Vimicro was selling at less than the net cash on the balance sheet, with a P/S and P/B of less than 1. The same factors led me to Action (ACTS ACTS) today. Action's cash and marketable securities at the end of the last quarter equalled $3.37 per share and the firm has no debt. So, it was selling at about 35% discount to its cash, more than that when some other assets are added to the cash. The balance sheet information from the last quarter can be found in its press release: Actions Semiconductor And it is a matter discussed during the earnings conference call. Pages 4-5, 8-9: Seeking Alpha The company was timid in share repurchases during the last quarter. The chart reveals a top in price at around 12 in May 2006, with a large decline in late June 2006 and into early July, followed by a gradual downward slopping line to a bottom this last March at less than $1.5. Actions Semiconductor Co., Ltd. Share Price Chart It did recently break above its 200 day moving average. Price to book is .6. Sales have been falling resulting in a P/S of around 2.56, a negative factor. Also, after reviewing the transcript of the earnings call, the average selling price per unit is also falling, and appears to be a problem for this small company. Also, based on a review of a report from Zach's, virtually all of Action's products (systems on chips) are in the "ultra competitive" MP3 market. So, those are two good reasons why the stock is hovering at such a low level. Still, it is impossible for the LB to entirely ignore a company selling at such a large discount to cash on its balance sheet.

This LOTTERY TICKET was found with the same kind of screen that came up with EXAR, except I changed the criteria to $3 a share in cash and a Price to Book (P/B) of less than 1. Since I was looking for Lottery Tickets, I used the typical criteria of a price less than 10 and place a limit on the amount of debt on the balance sheet (usually 10m or 20m). I know that I am fishing among the refuse when doing this screen and I do not want to lose the "bet" due to a failure caused by excessive leverage. Losing for some other reason is tolerable for the LTs. If I reduce the number of companies to 20 to 30 as a result of adding criteria until I have it to a manageable level I will use look at basic information to further eliminate potential LT candidates. Some are eliminated based on the information at the YF profile page, or a long history of losing money with no end in sight. Sometimes the reason for the stock's placement in the trash is well deserved or at least appears to be so after an initial look. Maybe 2 or 3 out of 20 will survive that first cut, and then maybe one will make it to a monitor list for additional evaluation.

2. Bought 100 Proctor & Gamble at $52.85 and Sold 100 Kroger at $21.9 (see Disclaimer): Once I decided to buy PG back this morning, I needed to sell another consumer staple. Kroger is one of my least favorite of those stocks, so I sold my 100 shares for the second time this year, making a small profit in the process. Bought 100 Kroger/Misinformation is the Coin of Our Realm in the U.S. My last foray into Proctor was a buy at $47.49 during the RB's stock frolic in March and LB sold it at $56.89 on 7/30 due to it being underwhelmed about Proctor's earnings forecast. Sold PG/Pared PGN/Bought 50 of the CEF IAE-Averaging Down LB is still underwhelmed about Proctor's near term earnings, meaning for the remainder of this year and most of next year. The change of heart was caused when I started to reflect on why I was buying some bank stocks as Lottery Tickets, trying to look at it long term, as in 3 to 5 years. Then, and this is a fact, the RB said why not give PG that benefit, it is a better company than any of these banks, pays a good dividend and a price in the low 50s might look good in 3 to 5 years. I read the most recent reports from the analysts at Barclays, S & P and Morningstar, who collectively had it rated as a buy. So, now I am back into a Proctor position at about $4 lower than my last sell in July.

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