Thursday, January 28, 2010

Sold VLO at 18.85/Bought 100 GIW at 7.03/Bought 50 DFY at 24.36/SO UBSI WSBC NHTB DSPG/ VZ & T

1. Federal Reserve: The Fed was more upbeat in its assessment of the economy in its first 2010 monetary policy release. FRB This is worth quoting:

"Information received since the Federal Open Market Committee met in December suggests that economic activity has continued to strengthen and that the deterioration in the labor market is abating. Household spending is expanding at a moderate rate but remains constrained by a weak labor market, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software appears to be picking up, but investment in structures is still contracting and employers remain reluctant to add to payrolls. Firms have brought inventory stocks into better alignment with sales. While bank lending continues to contract, financial market conditions remain supportive of economic growth. Although the pace of economic recovery is likely to be moderate for a time, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability."

The Kansas City Fed President, Thomas Hoenig, dissented, saying that he believed the Fed needed to eliminate the language about keeping rates low for an "extended period": "Voting against the policy action was Thomas M. Hoenig, who believed that economic and financial conditions had changed sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted."

The previous statement said that "economic activity is likely to remain weak for a time". The FED dropped its sentence about housing being weak from the December statement, and made a positive statement yesterday about business spending.

2. SOLD 50 VALERO at 18.85 (See Disclaimer): One reason for buying VLO was the dividend. VLO cut the dividend yesterday from 15 cents to 5, and reported another quarterly loss. Valero Energy Corporation reported a 4th quarter loss, excluding items of 155 million, which compared favorably only to a bigger loss of 795 million in the 4th quarter of 2008. The GAAP loss in the 4th quarter was 182 million or 32 cents. I am not a fan of the refining industry and will be content to take small profits in very small positions. I bought the 50 shares sold yesterday at at 16.3 last December.

I am not in the mood to tolerate dividend cuts. I tolerated the recent reduction by Oceanfirst (OCFC) only because that holding is part of the regional bank strategy, which is by the far the most forward looking, long term strategy currently being implemented during this long term secular bear market. In 2008, as a novice bond investor, I did stumble into a long term strategy for bonds with a eureka kind of moment, when I realized that I was locking in over 10% annualized current yields on long term investment grade bonds, with some over 15% or even 20% for 20 or more years. All of those buys were in TC form, which was where the real bargains were during the meltdown. Trust Certificates Links in One Post

3. DSP Group (DSPG) (Lottery Ticket Category): DSP Group, Inc. reported non-GAAP net income of 12 cents per share for the 4th quarter, seven cents better than expected, but down 20% from the 4th quarter of 2008. More importantly, the company expects 10% revenue growth in 2010 and a "sharp" recovery in 1st quarter. The GAAP number for the 4th quarter was $(.13). DSP ended the quarter with 57.533 million in cash and marketable securities, plus 65.392 million in long term investments. The total cash was 123 million as of 12/31/09. (the company spent 20 million repurchasing stock in the 1st quarter of 2009 from NXP) I recently added this LT at 5.62. The shares rose 12.38% yesterday to close at $7.26: DSPG Even after that rise, the market cap is about 166 million. I still do not have a target on DSPG. This is a link to the earnings call transcript: Seeking Alpha


4. New Hampshire Thrift (NHTB)(owned Category 2-Regional Bank Strategy): New Hampshire Thrift Bancshares, Inc. reported 4th quarter earnings of 28 cents per share, down from 32 cents. The results for 2009 were $1.06 versus $1.00 in 2008. How many banks can say that earnings were positive in both 2008 and 2009, and increased in 2009 compared to 2008? The interest rate margin was 3.46% at the end of the quarter. Non-performing loans amounted to just .99% of total loans, down from 1.1% as of 12/31/2008. NHTB fell 7 cents yesterday to close at $10.4 in very light trading.

5. WestBanco (WSBC)(Owned Category 2-Regional Bank Strategy): WesBanco reported earnings of 27 cents per share, up from 21 cents in the 4th quarter of 2008 . The net interest margin increased slightly to 3.46%. The provision for credit losses decreased 1.8 million from the 3rd quarter. Tangible common equity to tangible assets was 5.88%. Tangible book value was $11.31 per share. The capital ratios look good to me, as of 12/31/2009:

Tier 1 leverage capital: 7.86%
Tier 1 Risk Based capital: 11.12%
Total Risk Based Capital: 12.37%

The consensus forecast for WSBC is for E.P.S. of $1.10 in 2010, and $1.44 in 2011. WSBC: Analyst Estimates for WesBanco If the bank achieved that kind of earnings acceleration, I would be content. Net income for 2009 was 70 cents.

WesBanco was a new addition this year: Bought 50 WSBC at 13.3/ The shares popped yesterday $1.5 to close at $14.72.WSBC

6. United Bankshares (UBSI) (owed-Regional Bank Strategy): United Bankshares, Inc. reported earnings of 40 cents per share in the 4th quarter, up from 38 cents in the year ago quarter. The beat the 37 cent estimate. The consensus forecast before this report was for $1.6 in 2010: UBSI: Analyst Estimates for United Bankshares, Inc. - Book value per share was $17.53. Tangible book value was $10.24. Net interest margin was 3.55%. My purchase of UBSI was in last November: Bought 50 of UBSI at $16.56/ The shares of UBSI rose $2.09 (9.57%) yesterday to close at $23.93: UBSI

The WSJ had a story yesterday about how the regional banks have outperformed the S & P 500 this year as well as their larger brethren. The SPDR Regional Bank Index was up about 8.6% so far this year compared to a decline in the S & P 500 of close to 2%.

7. Southern (SO)(owned): Southern is ex dividend today. Southern Company reported 4th quarter E.P.S. of 31 cents, one cent better than expected, compared to 24 cents in the year ago quarter. Revenues for 2009 fell by 8.1% to 15.74 billion. For those unfamiliar with Southern, it is the largest electric utility in the South, serving 4.4 million homes and businesses in four southern states. Industrial sales have been hurt by the recession. The CEO said that it will take a couple of years or so for industrial sales to return to pre-recession levels. Southern was a recent addition to my electric utility holdings: Sold 100 XLU at 31.25/Bought 100 SO at 33.27/Bought 100 of the TC GJX at 25.17 and Sold PYI at 21.28 It was substituted for XLU, the ETF containing the utility companies in the S & P 500. This turned out okay, with Southern holding its value and XLU has declined to below $30 in recent trading.

8. New Alliance (NAL)(Category 2-Regional Bank Strategy): NewAlliance reported 4th quarter E.P.S. of 12 cents compared to 10 cents a year ago. I am not impressed. This was one of Cramer's picks in his regional bank strategy. I did go along with his picks of NAL and GBCI, but I have been doing far better with my own since I started to implement this strategy last March. NAL shares fell 29 cents in trading yesterday to close below my purchase price.

Nonperforming loans to total loans is just 1.06. This is a quote from the earnings release on capital ratios: "The tangible common equity ratio and Tier 1 risk-based capital ratio were 11.08% and 19.92%, respectively, and total shareholders’ equity was $1.43 billion at December 31, 2009. The Company’s Tier 1 leverage capital ratio was 11.05% and is more than double the 5% regulatory benchmark that is considered ‘well-capitalized’ for banks. The Bank also has $1.48 billion of unused borrowing capacity."

9. Tidbits:

Dividends and Interest: As previously mentioned, I will check the WSJ dividend page every night to check on dividend declarations. I sometimes see a security with a good yield that is unfamiliar to me, which I will later investigate and possibly buy. I am also interested in dividend boosts and of course dividend reductions. Since the core of my investment strategy is to buy income generating securities and to reinvest all of the cash flow, I also monitor the ex dividend information. Today, the following securities owned by me go ex dividend or ex interest: OCFC, PFK, HRPN, PNW, SO, BAM, DFY & DFP. (DFY was bought again yesterday)

Washington Trust (WASH)(owned): I thought the earnings from WASH were good and was surprised to see the stock fall some in early trading yesterday. If I did not already own 100 shares, near my $2000 limit for Category 2 banks, I would have bought a 100. The shares ultimately kicked into gear some and rose 4.74% to close at $15.92. /Bought 100 WASH at $15.26

Physician Carelessness-Radiation Treatments for Cancer: I am a firm believer in being informed about anything that may impact my health.

I referenced the other day a NYT article about carelessness in the administration of radiation therapy that had disastrous consequences for the patient. Conspiracy of Silence The NYT published another article shedding light on this problem on 1/26, written by Walt Bogdanich. While mistakes will inevitably happen, even when the catastrophic consequences resulting from carelessness are known, my take away from this series of articles is that patients know nothing about the mistakes made at particular hospitals which could influence their decision to seek radiation treatment somewhere else, or to pursue an alternative course of treatment. And, there is almost no regulation over these devices or the training of personnel who perform the application. Another article points out the lack of rigor in checking the qualifications of radiation technicians: NYT

East West Bancorp (EWBC): East West stock rose 4.77% to $18 yesterday, and I am tempted to sell those shares bought at $5.7 last April Buy of 50 EWBC as Lottery Ticket I was not impressed with the 4th quarter results. Webster Financial (WBS) is becoming tempting too, rising yesterday 6.07% to $16.08, after being purchased last March at $4.58. Buy of 50 WBS: Lottery Ticket/The Long Tail Contract This is very difficult for the Old Geezer to hang onto a strategy when faced with these kind of gains. The strategy is the Regional Bank Stocks stratagem, which now has 26 stocks in it. (see also More on Regional Bank Strategy)

Obama did not get much love from the GOP tribe members of Congress last night, even when talking about tax cuts. No member of the opposition tribe is aware apparently the Obama has already cut taxes for 95% of Americans: WP Live blog 9:28 P.M. Note by Alex MacGillis Possibly, they fear a clap for the Beanpole would be viewed as treasonous by the tea party True Believers, and those who believe Adam and Eve walked with the dinosaurs. Kentucky's Creation Museum | vanityfair.com

FactCheck.org has a good discussion of the whoppers told in 2009.

Rule 11 Sanction on a Birther Attorney: I was glad to see that one of the Birther attorneys was fined 20 thousand by a Federal Judge in Texas for bringing a frivolous suit under Rule 11: /gov.uscourts .77605.28.0.pdf Barack Obama citizenship conspiracy theories I believe that a fine of this magnitude needed to be levied also against the plaintiffs in all of those suits.

10. Bought 100 GIW AT 7.03 (Category 2-Regional Bank Strategy) (See Disclaimer): This is another small regional bank which operates in the Catskill region in New York. First, let me say that the bank refused to participate in TARP: form8k This is some indication of a lack of need for those government funds which I view positively. The bank earned 26 cents per share for the Q/E 9/30/09, up from 13 cents in the 3rd quarter of 2008: form10q This is a quote from that last 10-Q on its capital ratios:

" In addition, the Bank’s Board of Directors has established a minimum capital policy that exceeds “well capitalized” regulatory standards to ensure the safety and soundness of the Company’s banking subsidiary. The Company’s Tier 1 capital to average assets ratio, Tier 1 capital to risk-weighted assets ratio and total capital to risk-weighted assets ratio at September 30, 2009 were 7.35%, 11.11% and 12.37%, respectively. This compares to 7.33%, 10.26% and 11.46%, respectively, at December 31, 2008." Page 40.

The current dividend rate is 6 cents per quarter, which will give me about a 3.4% yield: GIW Stock Quote - Wilber Corp

11. Bought 50 DFY at 24.38 in Roth (see Disclaimer): Income investors know how hard it is to find yield now. After the FED repeated its statement yesterday about keeping rates at zero for an "extended period", a 8+% senior bond from Delphi Financial started to look better than it did a few weeks ago. I did not think that my limit order at $24.38 would fill yesterday, the volume was extremely light and the bid/ask spread was around 30 cents. I just put my 50 share limit with another 200 shares from someone else at the 24.38 number. This security pays interest quarterly and is ex interest today.

I bought and sold this issue in the same account recently: Bought 50 DFP & Sold 50 DFY in Roth In that post I explained that I bought the junior bond from Delphi (DFP) at 17.1, which was then yielding 10.78% at that price, and sold DFY, the senior bond, at 24.45. I viewed the yield differential between those two bonds as too large, so I basically substituted in the Roth the junior bond for the senior one. Since that post on 12/18, the junior bond has risen to $19.5 (DFP), or $2.4 from my purchase, while the senior bond has fallen in price by a few cents. I also trimmed my holding in the junior bond in the main taxable account by selling 50 of my 150 shares: Sold 50 of the 150 DFP Those shares were also bought at $17.1 and were sold at $18.9 after collecting an interest payment. The senior bond which was sold earlier at $24.45 was bought at 22.48. So I have booked some profits, and have recently reduced my exposure to the junior bond. I was therefore in a position to add back the more secure senior bond yesterday by buying back the 50 shares previously sold.

DFY prospectus: e424b5 This senior bond has a $25 par value and a 8% coupon, with a maturity in 2033.

The issuer is Delphi Financial ( DFG). QuantumOnline shows a BBB+ investment grade rating from S & P and Baa3 from Moody's for this bond. This may not be up to date. I checked FINRA which has only one senior bond traded in the bond market, a senior bond maturing in 2020 with a 7.875% coupon, selling at a slight premium to its par value. FINRA - Investor Information - Market Data - Bonds - Bond Detail The S & P rating is shown at FINRA for this bond as BBB. This was a recent issuance: Delphi Financial Prices Public Offering of $250 Million of 7.875% Senior Notes due 2020 A.M. Best assigned a BBB rating to it: A.M. Best Assigns Debt Rating to Delphi Financial Group, Inc.'s New Senior Notes

This is a link to Delphi's last 10-Q for the Q/E 9/30/09: e10vq The firm did earn 39 cents per share for the quarter and $1.63 for the first nine months of 2009. The issue discussed by A.M. Best about the firms investment losses is discussed at page 26 of the 10-q filing and is worth monitoring. It will be something that I will need to monitor in future reports.

12. Verizon (own senior bonds only in TC Form-PJL and XFL): Apple does not appear to want to play ball with Verizon. Before yesterday, the rumor reported in the press was that Verizon would be the wireless carrier for Apple's new tablet. That turned out to be erroneous. AT & T will be the carrier for the device, offering a $29.99 monthly data plan for this new tablet, which looks nifty to me, but I have no use for it personally. And, since no contract has to be signed by the user with AT & T, it is unlikely that AT & T is subsidizing the new device. An article in Forbes attempts to explain why Apple is staying with AT & T. I own AT & T common as well as one of its long bonds in TC form (JZE and JZJ). Verizon slid some on the news closing yesterday at below $30 a share. But, VZ has been falling every day since releasing its lackluster results for the 4th quarter on 1/26: Verizon Reports

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