Thursday, January 7, 2010

Bought 50 ZBPRA at 12.5 in IRA/BRKS Upgrade/Whitney Tilson on YHOO and Berkshire/LNDC Earnings/Broker Upgrades on GLW/ISM/PVX

1. Corning (GLW)(owned): On Tuesday, there were several positive analyst notes on Corning, summarized by Eric Savitz in his Tech Trader Daily Column in The Citigroup analyst raised his target to $24, and increased his 2010 and 2011 E.PS. estimates to $1.85 and $2 respectively. The RBC analyst has a sector perform rating but raised the target also to $24. The Oppenheimer analyst raised the target price to $22 and increased the 2010 E.P.S estimate to $1.53. I added 100 shares of Corning on Monday based on some of the factors cited by these analysts which have been known for weeks now. Item # 8 Bought 100 GLW at 19.6 The shares did rise some on Tuesday to reach a new 52 week high of $20.06, on higher than normal volume, before pulling back to close Tuesday at $19.63, up a mere seven cents per share. And, GLW fell 25 cents to $19.38 yesterday, so those brokers did not have much of an impact.

2. Landec (LNDC) (owned LT category): Landec Corporation reported 6 cents in earnings for its second quarter in the 2010 F/Y. Revenues for this quarter, ending on 11/29/2009, were 60.933 million up from 58.038 million in the year ago quarter. LNDC ended that quarter with cash of 68.073 million and no debt. Market cap is around 168 million. I discussed this firm when I made my purchase which is now close to break-even. bought 50 lndc at $6.2-lottery ticket

3. U.S. Government's & Elmer Fudd: I wish to apologize to Elmer first for comparing the U.S. government to him. I read a column in the NYT yesterday that made a few comparisons between the intelligence lapses before 9/11 and the recent 12/25/09 event. Prior to 9/11, the State Department had a list of 61,000 people who were known or suspected of being terrorists. The security officials from the F.A.A. were asked after 9/11 how many of those names were on the no-fly list, and the answer was 12. And, this is the kicker. The F.A.A. had no idea that the State Department even had a list of names. And, two of the hijackers in the 9/11 attack were actively being sought by the F.B.I. and they were not even on the list of 61,000.

4. Whitney Tilson on Yahoo and Berkshire (both owned-2010 speculative category): I received my Forbes magazine in the mail yesterday, and read the column written by hedge fund manager Whitney Tilson which discussed both Yahoo and Berkshire as value plays. He argues that Yahoo's intrinsic value is twice the current price, and believes Berkshire is 25% undervalued.

5. ISM Services Index: The ISM services index returned to growth, just barely, with a reading of 50.1% in December. This was lower than the 51 consensus forecast but an improvement from the 48.7 mark in November.

6. Bought 50 ZBPRA in Regular IRA at $12.5 & Roth Conversions (see Disclaimer): Most American investors probably know the basic differences between a Roth and a regular IRA. Prior to last year I was thinking that I am now old enough that I should only fund my Roth IRA. Sure, I forego the deduction available on a contribution to a regular IRA, but I do not have pay taxes on withdrawals from the Roth (assuming no 5 year rule violation).

Then, I saw the magic. Last year, starting in October, I performed several partial Roth conversions of securities, including mutual funds, that had fallen a lot in value. Those securities were bought in the regular IRA so I had to include their value at the time of their conversion in my gross income for tax purposes. After performing those conversions, the values literally skyrocketed, particularly after the market turned back up starting last March. The original contributions to the regular IRA were deducted, going back to around 1981,which saved some taxes. I also saved taxes with the timing of the conversions when the values were low.

And, with those converted assets, I can leave them in the Roth with no time requirements on withdrawals, and no tax obligation when I take them out, provided I keep them in the Roth for five years from the first day of the tax year in which I made the conversion (Basics of 5-Year Rule on Roth IRAs - five-year waiting period Roth IRA 5 Year Rule), which I intend to do. (see also: Roth IRA Conversion) So, as far as I am concerned, it was a win win type of proposition. For those converted assets, many have been sold for more than twice their values at the time of conversion, after they recovered in value. Since I viewed this as a success, I decided to continue employing the strategy by selecting more volatile and/risky income securities to place in the regular IRA. This first meant that I need to add some funds to it because most of the securities had been converted to the Roth already during the meltdown. So a part of my annual contribution (2 out of 6 thousand) will be deposited in the regular IRA to fund a continuation of this strategy. As I have previously mentioned, my retirement contributions are funded out of my main taxable account, which I have not funded since 1984. Thus, the transfer of funds to the retirement account does not change the overall amount of investable funds.

And, the first security bought in 2010 in that account was the equity preferred floater, ZBPRA. I am foregoing the tax benefit of the qualified dividend on this security. Since I view it as risky, and it has been volatile, I decided to buy it in the regular IRA. If it goes down in value significantly, I will just include it in a Roth conversion, provided I want to keep it. I last bought this security at $7.8 during a meltdown last May: Bought 100 ZBPRA at $7.8 I has continued to pay dividends since that time.

As I discussed in previous posts, this is a non-cumulative (always bad) equity floating rate preferred stock issued by Zions (ZION) bank. It pays the greater of 4% or .52% above 3 month Libor. Since the par value is $25, the purchase at $12.5 doubles the value of the guarantee to me to 8%. The value of the Libor float, when it kicks in, will also be doubled in value. For example, if the 3 month Libor was 5% during the relevant period (now at .25%), then the computation would be .0552% x. the $25 par value or $1.38 annually and 34.5 cents for that quarter. But that 1.38 annually is worth 11.04% to me at a total cost of $12.5, twice the value to someone who bought at the $25 par value. I am mindful of my prior calculations on comparing ZBPRC with ZBPRA. Analysis of Prior Question: ZBPRA vs. ZBPRC OR ZBPRB The floaters have value to me in the retirement accounts as providing some protection against hyper inflation, assuming of course Zions continues to pay the dividends. A discussion of priority and stopper provisions can be found in this post: Item # 7 Bought 50 ZBPRB in Roth at $19.9

This is a link to my discussion about the Advantages and Disadvantages of Equity Preferred Floating Rate Securities. I was encouraged some yesterday by the spurt in ZION's common shares, rising 8.7% to $15. And, given the lack of alternatives now, I decided to increase my exposure to Zions by a tad, and now own 150 ZBPRA, 50 of the TP ZBPRA, and 30 of ZBPRC (added recently at at 18.4/) . Possibly the uptick in the common yesterday was due to a report from FBR capital markets. According to the NYTimes FBR favored banks which in its view had taken steps to improve their capital levels and credit problems, apparently naming Zions, and two of my LTs (LOTTERY TICKET PURCHASES), Huntington Bancshares (HBAN) and Regions Financial (RF), part of what I call Category 1 of the Regional Bank Stocks' stratagem.

7. Brooks Automation (BRKS)(owned LT category): BRKS popped yesterday 9.21% to close at $10.07 based on an upgrade from Barclays to buy from neutral and raised its price target to $13. The E.P.S. estimate for F/Y 2010 ending this September was raised to 47 cents, and to $1.07 for F/Y 2011. Barclays also sees an upside surprise for the December quarter, estimating earnings of 10 cents, based on improving demand from Brooks' customers AMAT (owned), VSEA and LRCX.

8. Provident Energy Trust (PVX)(owned-reinvesting dividend): I recently added to my position in PVX: Item # 3 Bought 50 PVX at 6.4 PVX rose 6.12% yesterday to $7.46. While all of my holdings in Canadian energy trusts have been rising over the past several trading days, based on a rise in natural gas and oil prices, Provident may have received a boost yesterday after announcing the sell for 190 million in cash some producing assets in West Central Alberta: Provident My other two Canadian energy trust, Enerplus and Penn West are held in Canadian dollars, and I bought another 100 of Enerplus on the Toronto exchange a few days ago. Bought 100 Enerplus/ Exchange: Sold 50 PNY and Bought 50 ORHPRA

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