Wednesday, September 9, 2009

Bought 100 RMIX-Speculative Lottery Ticket/Phoenix Downgrade/EBAY, Kraft, Forest City/U.S. Dollar in a Funk

1. Bought 100 RMIX at $1.57-Lottery Ticket (see disclaimer): RMIX issued 200 million in 8 3/8% senior notes in 2004. FINRA - Investor Information - Market Data - Bonds - Bond Detail That note is currently rated junk by the ratings agencies, with Moody's rating it B3 and S & P at B. The proceeds were used to redeem a 12% coupon bond. (Page 29: In 2006, RMIX issued another 85 million of the 8 3/8% bonds. The price has subsequently fallen well below par value. In first quarter of 2009, RMIX bought back 7.4 million in principal amount of this bond for 2.8 million plus accrued interest of .3 million, recording a gain of 4.5 million. Debt repurchase is the only profitable activity during 2009. Similarly, in the second quarter of 2009, the company recorded a gain of 2.9 million by buying another 5 million in principal amount. The company expects to finance itself for the remainder of 2009 using its existing cash balance of 4.5 million and its borrowing capacity under a credit agreement (page 31). The senior credit facility is due in March 2011 (pages 8-9). RMIX's net debt stood at 306.4 million at Q/E 6/09, up 15.4 million since Q/E 3/09.

There is a reason for discussing the debt situation first. The problem with this company is its debt, and the maturity schedule. The issue is whether demand for the firm's products will sufficiently return, soon enough, to allow the firm to refinance existing debt. So, unlike most LTs that I buy, this one can be done in by its debt load.

U.S. Concrete is a producer of ready-mixed concrete, precast concrete and concrete related products. The company has around 132 fixed and 12 portable ready-mixed plants & 7 precast concrete plants. RMIX operates primarily in Texas, California, New Jersey/NY, and Michigan. 10k.

Revenue for the firm's ready mix concrete declined 61.3 million in the Q/E 6/09 131.7 million from the corresponding period in 2008. Revenue for all products declined 30% to 143.7 million. The decline was due primarily to the drop off in home construction that began in the second half of 2006 in RMIX's markets. The firm lost 11 cents during the Q/E 6/09 with the analysts forecasting a 3 cent loss. U.S. Concrete Reports RMIX's CEO that he was "generally pleased with the pricing trends we saw in the second quarter" And, the firm's raw material spread improved 280 basis points during the quarter compared to the 2nd quarter of 2008.

Price to sales is a minuscule .09. Price to book is 1.02. RMIX: Key Statistics for U.S. Concrete

Forbes ran a negative article about the RMIX bond referenced above, quoting an analyst from Gimme Credit who pointed out that sales have fallen for 4 straight quarters and the cash balance was shrinking.

Since I am already suffering from Lottery Ticket overload, I am just going to ignore this one-for the most part. Instead, I am going to place two emails alerts with my broker, one at 75 cents and the other at $3 and maybe I will do something when one of those numbers is hit.

The RMIX buy this morning did cause a contretemp between the RB and the LB. The LB entered a limit order before the market opened to buy 100 shares at $1.55 and could have bought the 100 with a market order at $1.57. The RB was almost at a loss for words. Cheapskate and Scaredy Cat were just two of the kindest remarks uttered by the RB. To silence the RB and to achieve a brief moment of silence to engage in thoughtful contemplation on the 100 or so variables and options, the LB relented and entered a market order.

2. Phoenix Insurance (own senior bond only): Moody's joined S & P in downgrading Phoenix Insurance to junk. Moody's downgraded the insurance units two notches to Ba1. The holding company's debt, which is what I own, was downgraded further, down to B1.Moody's PFX is at best a marginal hold for me. I may sell it any day now.

3. Kraft: I am now convinced that the Directors at Kraft have lost their marbles allowing the CEO to go after Cadbury. An Vice President of Kraft said yesterday that Kraft will remain "financially disciplined" when pursuing Cadbury. A case could be made that Kraft has already lost fiscal discipline with its existing offer before it is sweetened. The return on the investment will end up being lower than the cost of capital. breakingviews Bloomberg reported this morning that Kraft was in talks to raise 8 billion to help finance its bid for Cadbury. I may lower my target for selling Kraft.

4. U.S. Dollar: The Dollar Index fell to 77.21 yesterday: DXY Index Quote - US Dollar Index Future U.S $ INDEX (NYBOT:DX) The Euro hit a new yearly high against the greenback. FXA, the currency ETF for the Australian dollar which I own, closed yesterday at $86.3, up $1.19 for the day. It was trading at below 65 in March. An upward move in FXA started with the turn in the U.S. stock market in early March. FXA - CurrencyShares Australian Dollar ETF Chart The chart at the end of this article in the WSJ shows the recent strength of the Aussie currency against the U.S. dollar:

5. Ebay (owned): Sanford Bernstein raised EBAY to outperform and increased its price target to $28 based in part on the core auction business turning around.

6. Forest City (FCE/A-owned as LT): Forest reported results for the second quarter with EBDT rising 8.1% from the second quarter of 2008. Forest City I have been more interested in the progress being made to extend the line of credit and the progress in refinancing debt coming due in 2009 and 2010. Debt is the problem here. Forest is making considerable progress in its 2009 refinancings, but is still in negotiation on the extension to renew its line of credit. The company noted that it was evaluating potential transactions, primarily in the form of joint ventures, to improve its liquidity. However, it also noted that property dispositions have been challenging due to illiquidity in the market. For Forest, what I did was to take my profit garnered from trading a senior bond (FCY) and used those funds to buy 50 shares of the common stock in May at $6.3 as a Lottery Ticket. LOTTERY TICKET PURCHASE: 50 SHARES OF FCEA-FOREST CITY COMMON/ADDED: SOLD FCY

I thought that Cramer was becoming so excited yesterday during the 'Mad Money' show, about a reverse head and shoulders pattern and his rationale for the S & P moving to 1200, that I had a deja vu feeling about 1999 and then I started to wonder when he would have to start breathing into a paper bag.

One of the hardest things for me now is to resist taking profits on positions bought in March and April or even selling one or two of the stock ETFs bought as late as May or even July. In May, I bought XLI, an ETF for the industrial stocks in the S & P 500 at $22.16, and then I bought the Vanguard ETF for Industrial stocks in July at $42.46. I do not need or want both, but I do not want to sell one prematurely either.

I have received a few emails from readers more adventuresome than me about buying small amounts of stock. The LB is certainly a cautious sort, and it has engineered a significant recovery in the Headknocker's capital base, back to where it was in October 2007. Since 1984, I have not added funds to my brokerage accounts, nor have I withdrawn any funds for personal use. And, I am funding the maximum contributions in the retirement accounts with funds from a taxable account. So, there are advantages in being a tortoise.

I would also point out that it is possible to make decent amounts of money with small purchases. I have highlighted a few such as the buy of 50 NADX at $1.27 in an IRA, selling those shares at $4 and then buying with the proceeds 50 CBG at $2.39 and then selling those at $9.73, basically turning $70 into around $470. . SOLD NADX IN IRA Bought Lottery Ticket in CBG at 2.39/ SOLD 1/2 CBG Another example would be buying just 25 shares of S L Green in January at $15, and those shares have an unrealized profit now of over $500. Add 25 SLG/DD, VZ, GLW/PIS Sure, I could have made more by buying more, but that is not how I control risk when the risk level is at an enhanced level. I was buying during the height of crisis, just not in bulk.

I will be gone on business Thursday and Friday, so must likely there will not be another post until the weekend unless I post another one today.

No comments:

Post a Comment