This is my second post for today. I will describe the rest of my trading activity from today in tomorrow's post.
I decided to write another post based on what I am seeing today in regional bank stocks.
Today, I am seeing unusual trading activity in regional bank shares, particularly those previously bought in my Category 1 of my Regional Bank Stocks strategy, which I have been implementing since March 2009. This Category # 1 contains those banks deservedly shellacked for mistakes made during the credit bubble, driving their share prices down to lows last seen when the banks managed to blow themselves up back in the 1990-1991 period.
Some of the rise today probably does relate to short covering, as mentioned in this story from the WSJ.com. Since I view the stocks in this Category 1 to be more speculative than the Category 2 banks, I will limit my investment in them to $300, which I call a LOTTERY TICKET, at least until I see more positive developments.
So far, I have taken two banks out of my Category 1 and placed them into #2, East West (EWBC) and Wilmington Trust (WL) which permits me to invest more than $300, which I subsequently did do for WL. I probably will not add to EWBC, bought at $5.63 in April of last year, and now trading at close to $17 this afternoon: Buy of 50 EWBC as Lottery Ticket EWBC: Summary for East West Bancorp, Inc. For those familiar with this blog, I run multiple strategies concurrently, and the LT and Regional Bank stratagems are a very small and insignificant part of what I am doing now.
1. Verizon (VZ)(own senior bonds in TC form only): I noticed on Wednesday that both Verizon and AT & T were weak, and wondered why. Although both stocks were ex dividend that day, there was still a 2.86% decline in VZ adjusted for the ex dividend. I looked into it, and the problem originated from Verizon forecasting 2009 earnings to fall 13 to 15 cents below the 2008 number, and this would be more of a drop than the consensus estimate of a nine cent decline. WSJ Reuters
2. Pending Home Sales: The National Association of Realtors reported on 1/5 that its index for pending sales of existing homes fell 16% in November. Pending Home Sales The 2009 November number was still 15.5% higher than the November 2008 number. I suspect that a lot of demand was pushed into previous months based on what was believed then to be an upcoming expiration of the home purchase tax credit. There is concern by some member of the Federal Reserve that the recovery in housing may be aborted when the Fed ceases to buy mortgages at the end of March 2010. www.federalreserve.gov.pdf
"Generally, the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness, including the termination next year of the temporary tax credits for homebuyers and the downward pressure that further increases in foreclosures could put on house prices. Moreover, mortgage markets could come under pressure as the Federal Reserve’s agency MBS purchases wind down."
3. Alcoa (Owned): Citigroup cut AA to hold after the stock hit its $17 price target: MarketWatch
4. Macy' (own senior bond only in Trust Certificate form, Bought 50 of the TC DKQ at $15.95): Macy's reported a same store sales increase of 1% for December and raised its guidance for 4th quarter E.P.S. to a range between $1.14 to $1.18, up from $1 to $1.05.
5. Bought 100 SkillSoft (SKIL) at $10.35 Today (2010 Speculative Category non-LT) (See Disclaimer): In the e-learning space, I follow two companies- SkillSoft (SKIL) and Blackboard (BBBB). I have owned Blackboard but have not owned SKIL until my purchase yesterday. BBBB may have more potential, but SKIL appeared more to my preference for value plays. This article from the TheStreet emphasized some of the factors that I view as important. The P.E.G. ratio is less than 1 at .84. Return on equity is greater than 30% and a profit margin of 23.5%. The P/E is currently less than 15. The current 2010 fiscal year ends in January, and the consensus E.P.S. is 71 cents, and $.74 for the F/Y 2011. SKIL: Analyst Estimates for SkillSoft plc I would hope for more earnings growth in the upcoming year. The last earnings report was okay, even though revenues declined by 3%. SkillSoft
I view this firm to be somewhat sensitive to an improving job market. This firm's products would aid employers in training new employees and to improve the productivity of existing ones. A description of its business can be found at Reuters.com.
6. Bought 50 BBND at 3.51 (Speculative LT category) (see disclaimer): BigBand Networks (BBND) is another small cap tech company selling near the cash on its balance sheet. At my price today, the market cap is about 235 million, and the company reported 161.638 million in cash and marketable securities as of 9/30/09. e10vq The current consensus estimate is for 19 cents in 2010 up from 9 cents in 2009. BBND: Analyst Estimates As with some of the other small cap tech names in the LT category, I am glad that I missed the first 16 or dollars in BBND's move. The company traded briefly above 20 after its IPO in 2007, and then proceeded to fall to its current channel pattern mostly moving the $3 to $6 range since around October 2007. Price Chart | BBND
The last quarterly report was ugly on the revenue side: BigBand The CEO did say in the press release announcing those earnings that he saw "significant improvement in bookings during the third quarter" He mentioned that BBND had "won major new Switched digital markets, which increased our coverage to 28 million homes."
Since I am nowhere close to being knowledgeable about technology, I would simply refer anyone interested to the Reuters. profile page and the Reuters Key Developments' page.
From the little that I understood, it seemed like it was worth a small investment, given the CEO's statement, the low price, and the cash on the balance sheet. This is what I frequently try to find in these LT purchases, a stock already beaten to smithereens, a decent balance sheet, and a potential for a recovery assuming some improvement in the economy.