Tuesday, February 9, 2010

Bought 100 EXC at 44.25/Bought 50 FNLC at 13.6/Sold 100 TSCM at 3.02/BIP/

1. Bought 100 Exelon at $44.25 Yesterday (New Addition-Core Electric Utility Category)(See Disclaimer): Exelon is a large electric utility with substantial regulated and non-regulated operations. Its regulated operations are conducted via its wholly owned subsidiaries of Commonwealth Edison and PECO. Commonwealth Edison serves Chicago, Illinois. Its service area encompasses about 11,300 square miles in Illinois covering approximately 3.8 million customers. PECO's territory includes Philadelphia. It also provides natural gas to an area surrounding Philadelphia. PECO delivers electricity to approximately 1.6 million customers and natural gas to about 485,000 customers. This information was found at pages 13-16 of the most recent filed Form 10-K. In addition to those regulated operations, Exelon has a very large merchant power business. As of 12/31/09, the generation subsidiary owned 24,850 MW of generation net capacity, of which 17,009 MW was nuclear. (see page 2). The remaining capacity of 6,189MW is fossil (including 933 recently approved to be retired) and 1652 MW hydro or renewable. If cap and trade was to be approved as originally envisioned by the administration, Exelon with its huge nuclear footprint, and the largest operator in the U.S. of nuclear plants, would have been one of the largest beneficiaries. I do not view that legislation as likely now.

Still nuclear generation is clean and has low variable costs compared to other base load generation once the facilities are on line. The current cost of electricity for nuclear plants is generally around $15 per magawatt hour, compared with power prices in the $40 to $50 range.

I do not recall what caused the spill in share price from around $90 on 6/30/08 to $45 in March 2009. EXC Stock Charts I scrolled back through Reuters Key Developments and did not see anything in July 2008 on the earnings front that would account for the pullback. In July 2008, EXC affirmed its non-GAAP guidance for 2008 in the range of $4 to $4.4, and analysts were expecting 4.32. I would assume the analysts' consensus was non-GAAP. I would not pay over 20 times earnings for an electric utility, and ultimately the price sank due to excess valuation in my opinion. The recession's impact on power sales added fuel to the downdraft, as did the hostile offer made by Exelon for NRG Energy in October 2008, which ultimately proved to be unsuccessful.

The current valuation is more reasonable than the one reached in mid 2008. The excess valuation in early 2008 was probably due to a misplaced infatuation with the non-regulated merchant power business. The current estimate for 2010 is $3.78 and $4.27 in 2011. EXC: Analyst Estimates for EXELON CORPORATION

Analysts are not too excited about this utility. There are currently 15 holds and 4 buys: Reuters.com Morningstar, however, does have a favorable opinion, rating Exelon five stars with a fair value at $73 and a consider to buy at $51.1. S & P has the stock rated 4 stars with a $60 price target. Most online brokers provide access to the S & P report. Barclays recently reduced its price target to $51 from $55 and has an equal weight rating.

The following are links to discussions about Exelon's last quarter's earnings: Reuters MarketWatch WSJ.com

The current quarterly dividend is $.525 per share or $2.1 per year. The payout ratio is hovering in the 55% area, assuming EXC earns $3.78 in 2010. So there is room for dividend increases. A key to earnings will be a return to more normal levels of power demand.

I am going to put Exelon in my core electric utility category, which means that I will reinvest the dividends to buy additional shares, and it will take a major adverse development to shake me out. By adverse, I mean more than an earnings miss for a quarter or a year. A major adverse development would be for example some negative regulatory change impacting Exelon's merchant power business, or a very hostile turn in state regulation similar to what has happened in Florida. The state regulatory environment in Illinois is not good, so a decided turn to more populism could cause a sell. In the utility context, populism is a term which I will use to describe an abandonment of traditional regulatory principles in an effort to gain a political advantage. This would normally mean an unwillingness to include costs in the rate base and/or a reasonable return for the investments already made by the utility.

Exelon was caught in the downdraft yesterday afternoon, and closed at $43.76. EXC It is a member of both the S & P 100 and the S & P 500, and would be impacted my massive selling of those indexes by hedge funds and other institutional investors. The volume on yesterday's downdraft was significantly less than the average daily volume over the past 3 months as shown at YF.

Exelon replaces Progress Energy (PGN) in my portfolio, which was sold in response to Govenor Crist's politicization of the Florida PSC. Sold All PGN FPL Reacts to Hostile Political Environment in Florida

2. Bought 50 FNLC at $13.6 (see Disclaimer): This small bank from Maine with 14 branches will be put in Category 2 of my Regional Bank Stocks strategy. I now own shares in 28 regional banks, and will stop adding them when I hit 30. I will then add up to $5,000 buying additional shares in the those already owned over the next year. The First Bancorp reported earnings of 24 cents for the Q/E 12/09, down from 31 cents in the year ago quarter. The bank earned $1.22 in 2009, down from $1.44 in 2008. So, look on the bright side, it remained comfortably profitable during the recession. Its efficiency ratio was 43.39%, much better than its peer group's 72.13%. Book value is $12.66 and tangible book was at $9.82. The total risk based capital ratio was nearly 15% as of 12/31/2009, well above the well capitalized 10% number set by the FDIC. I view as a negative the continued presence of government preferred stock on the balance sheet bought with TARP funds. (25 million: www.sec.gov ). Apparently, the bank views those funds as a low cost source of capital. The dividend rate on the government's cumulative preferred is currently 5%.

The current common share dividend rate is $.195 per quarter which will give me about a 5.6% yield.

FNLC closed yesterday below my purchase price, falling late in the day on light volume to $13.39: FNLC: Summary for First Bancorp, Inc (ME) The one analyst that follows the bank has an estimate of $1.47 in 2010 and $1.71 in 2011.

This is a link to its branch locations in Maine. The First's Locations I have never heard of any of those places.

3. Sold 100 TSCM at $3.02 (see Disclaimer): My shares of TheStreet.com were bought as an LT at $1.88. So I realized over 50% on that one with a few dividends. I have been reducing my LT exposure, and taking some profits in several of them while I still had some green.

4. Brookfield Infrastructure (BIP)(owned): I did have several green arrows yesterday, always good on a down day, and BIP was one of them, rising 2.67%. Brookfield Infrastructure Partners reported adjusted net operating income of 27 cents per "unit", compared to 29 cents in the year ago quarter. The quarterly dividend was increased one cent to $.275. The decline in adjusted net operating income (ANOI) was due to more units outstanding. The ANOI increased in the quarter to 20.5 million from 11.3 million. The company said the increase in ANOI was due to including 6 weeks of results from "in Prime Infrastructure, Dalyrmple Bay Coal Terminal ("DBCT") and PD Ports following close of the recapitalization transaction on November 20, 2009, as well as strong performance from growth at Transelec." That recapitalization transaction is described in an earlier press release: Brookfield Asset Management and Brookfield Infrastructure Partners Completes Recapitalization of Babcock & Brown Infrastructure The dividend yield is around 6.6% at the current price of $16.5. BIP is a limited partnership. Brookfield Infrastructure Partners So there are partnership K-1 kind of tax issues: Tax Information | Brookfield Infrastructure Partners

5. Dividends and Interest(All the Securities mentioned in this section are owned): Exxon (owned) was ex dividend yesterday. I have decided to keep this one long term and to reinvest the dividends.

I own several bonds that go ex interest for their semi-annual or quarterly payments on 2/10. These include MJV (semi-annual: Bought 100 MJV at $24.8); JBI (semi-annual: Bought 100 of the TC JBI at $25.1); and FPCPRA (quarterly: Bought 50 FPCPRA at $24.95 Bought 50 Shares of FPCPRA). All of those bonds would be sold when I become concerned about significant interest rate risk arising from inflation that would have a severe adverse impact on long term bond prices. All of those bonds were bought near par value. I am accepting the interest rate risk for now only because of the Jihad by Uncle Ben against savers in the U.S.

One of my core electric utility holdings, Duke Energy, will also go ex dividend on Wednesday. The recently acquired Exelon goes ex on the 11th and ConEd on the 12th, both are in the core utility category. Emerson Electric, a core holding in the industrial sector, also goes ex dividend. For core holdings, I will reinvest the dividend.

Two TCs containing the same Hanover Insurance Trust Preferred ( via AFC Capital) (PKM and KRH), currently classified as a long term holds short of a hyper inflation scenario, also will go ex interest with their semi annual payments. The CPI floater, OSM, goes ex interest for its monthly interest payment on the 10th. The recently acquired TC contained a Qwest bond, PJA, will go ex with its semi-annual payment ( Bought 50 PJA at 19.45) Two Blackrock CEFs, PSY and BTZ, go ex with their monthly dividends.(recently sold 100 of the 200 held of BTZ). DuPont, a long term position bought at $16 and change, goes ex with its quarterly dividend. The TC JBK containing a Goldman Sachs junior bond that has reverted from a synthetic floater to a fixed coupon TC will go ex interest with its semi-annual interest payment. Bought 100 JBK at $16.15 Bought 50 of the TC JBK/

The CEF Adams Express will go ex with its quarterly distribution (dividends paid by ADX are reinvested). Wilbur, one of the 28 banks in the Regional Bank Strategy, will go ex with its quarterly payment. Unilever, a long term position, will go ex with its semi-annual payment.

Several synthetic floaters, including GJP and GJL, will be ex interest for their monthly interest payments. Bought 100 GJL/ Bought Another 100 of GJL/ Bought 100 GJP at $18.97 GYB, a synthetic floater tied to a junior Goldman bond, goes ex for its quarterly payment.

The foregoing list shows how heavy I am into income producing securities, along with the variety of income producing securities, with differing payment schedules, so that there is a constant flow of income into the accounts which then can be invested mostly in more income producing securities.

For a few more hours, the securities that ex dividend or interest on Wednesday will be listed in the Dividends' page of the Markets Data Center at the WSJ.com.

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