Wednesday, February 17, 2010

Sold 100 DANOY at 11.6 & Bought 100 UZV at $24.42/CPB SO AMAT/Housing and Industrial Production

1. Southern Company (SO)(owned-core electric utility strategy): Southern announced on Tuesday that the Department of Energy had awarded its subsidiary Georgia Power a "conditional" commitment for federal loan guarantees to construct the first nuclear plant in the U.S. in 30 years. SO rose 71 cents on Tuesday to close at $31.88. The new units would be located near Georgia's Power Vogtle nuclear units in Waynesboro, Georgia. The loan guarantee, part of an energy act passed in 2005, permits the government to assume a company's debt obligation in the event it defaults on the debt incurred in building the project. This appears to be primarily a way to secure financing for this hugely expensive project and to lower the cost of financing. Southern would have a 45.7% interest in the two 1,100-megawatt reactors.

2. Campbell Soup (CPB) (owned): Campbell revised its fiscal 2010 guidance for sales growth to 2.5% to 3.5% from 4 to 5 percent, but reiterated its adjusted net earnings per share growth of 9 to 11%. A decline in revenues, which is not currency related, may at some point cause me to exit a position. However, I will wait to make a decision on CPB until the shares bought last April have been held for at least one year in order to qualify for long term capital gains treatment. Bought CPB at 25.35 I have already sold the shares bought in March 2009. I personally do not consume much soup but have become a frequent imbiber of the V8 Fusion drink, as the currently preferred way to get my fruits and vegetables. Buys of CPB LQD SYY XKK CPB took the lower revenue guidance in stride today rising 3 cents to $33.62.

3. Sold 100 DANOY at $11.6 and Bought 100 of UZV at $24.42 TODAY(See Disclaimer): I sold the 100 shares of Danone, recently purchased, for a small loss. Bought 100 DANOY at 11.9 My concern is not about the company but an increasing queasy feeling about the exchange rate with the Euro. Danone stock could be rising in Euros or holding steady, but falling in value for me due to the Euro continuing to decline in value against the U.S. dollar. I will wait at least 30 days to avoid the wash sale rule in the U.S. and then decide when and if I want to buy the position back and to assume again the currency risk. The currency ETF for the Euro (FXE), which I have never owned, fell $1.59 today to $135.82. I do give myself a kudos for buying the double short ETF for the Euro when it would buy over a $1.5 U.S., very close to the top, and a demerit for selling that double short euro ETF too soon.

UZV is an exchange traded bond that I passed on at least a dozen times at lower prices and higher yields. It is rated investment grade according to the quantum site. It is a senior note from U.S. Cellular with a par value of $25, a coupon of 7.5% and a maturity in 2034. So, this one has the long bond interest rate risk.

This is a link to the prospectus:

Interest is paid quarterly which is a plus compared to paying semi-annually.

United States Cellular Corp (USM) is a wireless telephone company which is profitable: USM: Analyst Estimates for United States Cellular Corp This is a link to its last quarterly report filed with the SEC, for the Q/E 9/30/09: form10_q. The issue with USM is its relatively small size in the U.S. with about 6.2 million customers:

I placed 50 shares in the Roth and 50 shares in a taxable account. Most likely, since I prefer to hold interest paying securities in a retirement account, I would sell the 50 in the taxable account first.

There is another United States Cellular exchange traded bond. GJH has a $10 par value and is in the Trust Certificate form of ownership. This TC has a coupon of 6.375%, whereas the underlying bond from U.S. Cellular is a 6.7% note. This is a senior bond and it matures in 2033. Interest is paid semi-annually in June and December. At a $8.35 total cost, the yield would be about 7.63%, about the same as the 7.66% yield of the $25 par bond that I bought today. So I went with the security that pays me a tad more on a more frequent time table-more frequent payments are always preferable. The underlying bond in GJH can be tracked at FINRA - Investor Information - Market Data - Bonds - Bond Detail.

This kind of long bond, paying less than 8% and bought near par value, will be sold as soon as I become concerned about an inflation problem on the horizon, hopefully recognized by me before it has a serious impact on the value of these long term bonds. I am returning to some of these names which I previously passed over due to the duration of Uncle Ben's Jihad against savers and other responsible Americans. While 7.6% sounds good when the alternative is .01% in a money market account, the value of that long bond could easily fall in value with a rise in interest rates wiping out that advantage and then some. And 2033 is a long time to wait to get your money back, assuming the firms survives for that long. So it is important to understand interest rate and credit risk in bond investing. See, e.g. Item # 2 Interest Rate Risks- Bonds and

Anyone who became an investor in the 1970s and saw first hand the carnage in bond land caused by inflation and rising rates does not have to be told about that risk. Others may need a reminder.

5. Housing Starts/Industrial Production: Privately owned housing starts increased a seasonally adjusted 2.8% in January over the revised December number and by 21.1% over the January 2009 level. /newresconst.pdf The number for December was revised to a .7% decline from a 4% fall.

The Federal Reserve reported that industrial production rose .9% in January, slightly above the consensus forecast. Industrial Production and Capacity Utilization The capacity utilization rate rose .7% to 72.6, a rate 8 percentage points below its average.

6. Applied Materials (AMAT)(owned): Applied Material reported a profit of 13 cents for its first fiscal quarter on a non-GAAP basis (6 cents GAAP) on a 39% increase in revenues to 1.85 billion dollars. For fiscal 2010, AMAT expects net sales to grow by more than 50% which is an increase over the previous outlook of a 30% increase. I am not a long term holder, and would be pleased to sell my recently purchased shares at $15.

7. FED Minutes from January Meeting: These minutes show that the FED expects the economy to grow at a 3.2% rate in 2010 and the unemployment rate to be 9.6% by the last quarter of 2010. www.federalreserve.govmonetary/fomcminutes20100127.pdf

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