Friday, July 30, 2010

Bought 50 VLO at 17.12/Bought 50 AMAT at 11.95/Husky Energy SUSQ FBSS STD

The leading light of the Tennessee GOP, Basil Marceaux, is running for governor of Tennessee. Basil's new ideas, rivaling those of Sharron Angle in their ingenuity, have caused him to become an international celebrity. One of his ideas is to remove stop signs throughout the state. Another is to plant grass on vacant lots and then "sell it for gas." Basil recently expressed his view on Channel 4, a local TV station, and this video has become an international sensation on YouTube - Basil Marceaux : The Next Governor of Tennessee.

The market was spooked yesterday morning by the St. Louis Federal Reserve President James Bullard talking about deflation and the possibilities that the U.S could "become enmeshed in a Japanese-style, deflationary" scenario. (see also, Bullard - WSJ)

Some pressure to the downside was added by tepid earnings reports and/or forecasts from the likes of Colgate, Kellogg, Symantec and some smaller tech names, notably Akamai Technologies. Colgate fell 6.84% yesterday after revenues rose only 2% in the quarter to 3.81 billion, with the consensus estimate at 3.94 billion. Kellogg missed the revenue and earnings forecasts and lowered its earnings forecast. Part of Kellogg's problem was due to a large recall, however. I do not own any of these stocks. Symantec is mildly interesting to me in the $12 range. SYMC fell 11.18% yesterday to close at $13.03. Akami fell 12.9% to $38.35.

I previously discussed a pop of around 100% in my shares of Wainwright (WAIN), a Massachusetts bank, after it agree to be acquired for cash. Sold 50 Wain at $18.7-Being Acquired I noted in some research conducted yesterday that another small bank located in Massachusetts, LSB Corporation (LSBX), agreed to be acquired by People's United for $21 in cash, which caused a pop from a close of $14.12 on 7/15/2010. LSBX: Historical Prices for LSB Corporation I recently added 50 of Century Bancorp at 20.53, another small bank in Massachusetts which was selling then at a substantial discount to its tangible book value of $25.25. Century has two classes of stock, as noted in the comment section to the previous linked post, and would require the consent of the insiders for a merger. ("Since the vote of a majority of the shares of the Company’s Class B Common Stock, voting as a separate class, is required to approve certain extraordinary corporate transactions, the holders of Class B Common Stock have the power to prevent any takeover of the Company not approved by them." page 8 e10vk)

I did not notice until yesterday that PMA Capital (PMACA) agreed to be acquired by Old Republic (ORI). Old Republic and PMA Capital Announce $365 Million Merger Agreement I do not own the common stock of either firm, but I do have a position in a senior exchange traded senior bond (PMK) of PMA Capital which is currently selling at a few cents above its $10 par value. I further noted that A.M. Best placed PMA Capital's debt under review with positive implications since Old Republic is rated higher than PMA. I do not intend to do anything with my position in PMK unless and until it sells at a larger premium to its par value. Bought 100 PMK at 9.71 Added 50 PMK at $8.21 Bought 100 PMK at $8.35 Sold 100 PMK at 9.2

Several Canadian life insurance companies popped in trading yesterday, including a 4.77% gain in my recently acquired Manulife ( Bought 100 MFC at $15.05), after the Canadian financial services regulator announced that new regulations governing segregated fund guarantees will apply only to new accounts. Reuters A Canadian insurance company also announced yesterday earnings of 68 Canadian cents yesterday, one cent better than the consensus estimate. Industrial Alliance Insurance ( IAG.TO)

Last night, Samsung reported a record 3.6 billion dollar quarterly profit. Bloomberg

1. Bought 50 Valero (VLO) at $17.12 on Wednesday (see Disclaimer): I am playing with the house's money on refiners. The main reason for that result is that I have not held any of them for a long period. I view this industry sector to be a trade, and I have a negative view of refiners as a business. It is a feast and famine business with large capital costs. The input costs of crude can vary widely and have a profound impact on the profitability of the business. Weakness in demand for the refined products can squeeze margins. The impact of those variables led Valero to cut its dividend recently and to report losses. The recently released second quarter report had a greater than expected profit. Valero Energy reported an E.P.S. of 93 cents compared to a 36 loss for the 2nd quarter of 2009. The consensus estimate was for earnings of 71 cents per share. Reuters The profit was due to better margins on refined products and lower costs. Operating expenses fell to $3.55 per barrel from $4.41 in the 1st quarter. The throughput margin per barrel rose to $9.39 from $5.79 in the 1st quarter. The CEO said that margins and costs remained at relatively good levels so far in the 3rd quarter.

Valero had around 2 billion in cash in the quarter and successfully sold its refinery in Delaware for 220 million. VLO is in better shape now than the last time that I bought some shares at close to the same price. Bought 50 VLO at 16.3 Sold VLO at 18.85 Sold Valero at 21.14-Bought at LessSusquehanna Bancshares, Inc. Announces Second Quarter 2010 Results - Yahoo! Finance than $17 Refiners: ALJ and VLO Bought 50 DK at 5.75 Sold Delek Sold Alon (ALJ)

Price to sales is .13 and price to book is .67: VLO: Key Statistics for Valero Energy Corporation The consensus estimates are currently for $1.22 in 2010 and $2.23 in 2011, but I would put no reliance on those numbers given the large swings in margins due to costs and demand factors. Improving demand will be a plus for VLO. The five year chart shows the impact of the recession and/or high crude prices in dramatic fashion: Valero Energy Corporation Commo Share Price Chart | VLO In the early stages of the recession, oil prices started to surge before peaking at close to $140 per barrel (WTI Spot Price) as demand for refined products started to fall. In July 2007, Valero was trading over $77 per share. By October 2008, the share price hit $16.

2. EXXON (own): Exxon Mobil reported net income for the 2nd quarter of 7.56 billion or $1.61 cents per share, up from 81 cents in the 2nd quarter of 2009. The consensus estimate was for $1.46. Revenues increased 24%. Refining and marketing earnings more than doubled on better margins. Cash flow from operations was 9.6 billion. Share repurchases in the quarter exceed 1 billion dollars. Oil equivalent production increased 8%.

3. Susquehanna Bancshares (SUSQ)(own-category 1 Regional Bank Stocks basket strategy/also own TP SUSPRA): Susquehanna Bancshares reported another blah quarter that will keep its common shares relegated to category 1. The bank had a 1 cent loss but that was due to a 4.8 million dollar charge connected with redeeming 200 out of the 300 million dollars of the government's preferred stock. No matter, barely making a profit or loss is viewed as the same for SUSQ. The capital ratios are good, with the tangible equity ratio at 7.64% and the total risk-based capital ratio at 15.5%. The allowances for loan losses as a percentage of nonaccrual loans was 78.27%. The NPAs to total loans was at 2.60%. SUSQ remains a borderline category 1 to category 2 holding, on the cusp of a promotion but not there yet.

4. Husky Energy ( own ): Most likely, I would not have re-purchased Husky shares if I had waited until after the release of the second earnings report, Bought 100 HSE:TO at 26.25 CAD. Husky missed the consensus forcast by 11 Canadian cents, and lower its production guidance. Reuters The earnings report can be found at Husky Energy. Husky blamed a rapid decline in production from its White Rose field and a slow ramp up at a field off Newfoundland's coast. This is a quote from the earnings release: "Husky is adjusting its 2010 total production guidance to 285,000-295,000 barrels of oil equivalent per day from 306,000-330,000 barrels of oil equivalent per day. The primary reasons for this adjustment are: the delay and slower than forecasted ramp up of oil production at North Amethyst combined with the higher than forecasted decline within the main White Rose field which has stabilized after strong performance over the past four years, and weather-related issues in the heavy oil operations."

An analyst, quoted in the Reuters article, noted that 2010 was the sixth consecutive year that Husky management had failed to meet the year's initial production guidance. On the bright side, Husky did not cut the dividend again, declaring its regular quarterly dividend of 30 cents Canadian.

5. Fauquier Bankshares (FBSS) & United Bancorp (UBCP) (Own- Regional Bank Stocks): Fauquier Bankshares reported net income of 1.01 million or 28 cents per share, up from 20 cents in the second quarter of 2009. As of 6/30/2010, NPAs as a percentage of total assets was 1.12%; net interest margin was 4.1%; the allowance for loans losses as a percentage of NPLs was a very good 217.71%; the tangible equity to tangible assets ratio was 7.44%; and the total risk-based capital ratio was 12.49%. Bought 50 FBSS at 14.08

United Bancorp reported 15 cents in earnings for the 2nd quarter, unchanged from a year ago. The quarterly dividend is at 14 cents per share. The allowance for loan losses to nonaccrual loans was 50.54%. NPLs to total loans was 2.01%.

6. Santander (own Common STD and Floating Rate Preferred STDPRB): STD reported 2nd quarter earnings at €.26, down from €.28 in the year ago quarter. The consensus estimate was for €.27. Net income was €2.23 billion. PDF. Reserves for loan losses covered 73% of non-performing loans (NPLs). The non-performing loan to total loan ratio was 3.37%. Continental Europe accounted for 43% of STD's profit (22% Spain); Latin America 37% (Brazil 22%), the U.K at 17% and the U.S. at 3%.

7. Bought 50 Applied Materials at $11.95 (2010 Speculative Strategy)(see Disclaimer): I am not exactly sure why I keep buying AMAT. I just sold my small positions for even smaller profits at $12.94 and at 13.54. Whatever the reason, probably something to do with an appealing valuation for a long term hold, I am not going to take much of a chance with this company. The dividend yield at my cost is over 2%, and AMAT has 2.334 billion of cash on the balance sheet or around $1.74 per share. The current consensus estimate is for $1.19 per share in earnings for the fiscal year ending in October 2011, which gives me about a 10 P/E based on that forward estimate. In mid-July, Reuters reported that AMAT's CEO was forecasting 140% revenue growth in 2010 from AMAT's silicon systems group.

As a stock investor, the OG is naturally inclined toward value investing and dividend stocks. Tech stocks make him nervous, usually requiring a heavy ingestion of Maalox and a bottle of chill pills before hitting the buy button. I at least recognize some of the inherent problems. Their products become obsolete quickly. Valuations are frequently beyond absurd, particularly given the cyclical nature of their business, short product life cycle, and competition. For extended periods, investor dismiss those obvious issues and value tech stocks as if 20% compounded earnings growth will continue just about forever. So, I missed the bubble in 1999 entirely. I was not there on the way up or on the way down.

Valuations today are a different matter. Many of the larger names (IBM, HPQ, MSFT, INTC, CISCO, etc) are selling in the 10 to 12 times estimated forward earnings range. Many of these larger firms have enviable financial positions, loads of cash on the balance sheet, the ability to innovate, and products that are as essential (or more so) as any sold by a consumer products company. And their margins are better than consumer product companies, with the capability to generate boatloads of cash, at a much faster rate, during good times.

So, even though the current times are without question uncertain, and many have concerns about a double dip or a peaking in the demand cycle, it is just impossible for a value investor to overlook these companies at current prices.

Possibly, the best way for a non-tech investor to play this valuation theme is to buy the ETF XLK, and I did buy 100 shares. Bought 100 XLK at 21.89 That ETF contains the technology stocks in the S & P 500, and a low expense ratio of just .21%. Technology Select Sector SPDR Fund I may add to that position which has not done much since I bought those shares back in February. The top ten of this ETFs 87 positions are as follows:

As of07/28/2010
NameWeightShares Held
Apple Inc10.74%1,796,139
Microsoft Corp8.95%15,049,477
International Business Mach7.45%2,531,182
At&T Inc7.00%11,663,343
Cisco Sys Inc6.04%11,272,794
Google Inc5.30%477,782
Intel Corp4.58%9,365,095
Oracle Corp4.32%7,770,520
Hewlett Packard Co4.13%3,824,799
Verizon Communications Inc3.72%5,609,353

I have sometimes bought SMH, but will not buy it as long as I own Intel. A broader U.S. technology ETF fund, with an expense ratio of .48, is iShares Dow Jones U.S. Technology Sector Index Fund (IYW).

8. Dividends and Interest: I noted at the WSJ dividend page last night that several exchange traded bonds declared their regular interest payments. For the most part, it is a daily struggle just to refrain from selling many of these holdings given their current prices. MJV, a TP from the electric utility DPL, goes ex interest for its semi-annual payment on 8/11. Bought 100 MJV at $24.8 A trust certificate containing a Qwest bond as the underlying security, PJA, goes ex interest on 8/11 for its semi-annual payment. Bought 50 PJA at 19.45 A trust certificate containing a senior Goldman Sachs bond, PJI, goes ex interest on 8/11. Added 50 PJI at 20.17 A trust certificate containing a senior bond from Spectra Capital, JBI, goes ex interest for its semi-annual payment on 8/11 (Spectra was spun out of Duke Energy and JBI was originally an obligation of Duke Capital). TRUST CERTIFICATES JBI DUKE Bought 100 of the TC JBI at $25.1 Bought 50 JBI at 24.81 The trust certificate containing a TP from AFC Capital, a trust controlled by Hanover Insurance (THG)(in effect a junior Hanover bond) goes ex interest on 8/11 with its semi-annual interest payment. Bought 50 KRH in IRA at $18.62 Bought 50 of the TC KRH at $19 Another trust certificate, PKM, containing the same TP as KRH, also goes ex interest on 8/11. Preferredplus Trust Series All-1, PKM Stock Quote I also own PKM, which is functionally equivalent to KRH. Bought 150 TC PKM Although I recently sold 50 of the Ameriprise senior bond, AMPPRA, I still own 50 and it goes ex interest for its quarterly payment on 8/27. 100 AMPPRA at $24.75 PARED AMPPRA-Coping With the Fed's Jihad Against Savers A TP from US Bank, USB Capital VII, USBPRF , also goes ex interest on 8/11. JBK, formerly a synthetic floater now paying the coupon rate of the underlying Goldman Sachs Capital TP, also go ex interest on 8/11 for its semi-annual payment of $.7931. When this security was a synthetic floater, it paid on a quarterly basis. All quote services are calculating the yield based on the semi-annual payment of $.7931 being a quarterly payment and consequently arrive at an incorrect yield for this security. new information about jbk bought 100 jbk at $16.15 More on JBK PYT and GYB, two synthetic floaters tied to the same GS TP as JBK, also go ex interest on 8/11.

The CEF IGD goes ex dividend for its monthly distribution on 8/2. First Niagara (FNFG) declared its regular quarterly dividend of 14 cents with a 8/6 ex date.PPLUS TRUST SERIES GSC-2, PYT Corporate Asset Backed Corp, GYB Stock Quote

All dividends and interest distributions are used to finance additional security purchases.

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