Thursday, July 22, 2010

KO HCBK RNST FNLC WASH EBTC Roche (RHHBY)/Added 50 HMA at 6.75/RB Adds 50 HCBK at 12.15/RB adds 50 MDT at 36.25

a. Uncle Ben Channels Alan Abelson: It is bad enough that Uncle Ben is forcing responsible Americans, who played no role in causing the financial crisis, to pay for the sins of others. This is being done by the legerdemain of keeping rates at zero "for an extended period of time". Now, channeling David Rosenberg, he apparently wants to stop any stock market rally dead in its tracks, even send it into the crapper again. MarketWatch Perhaps, Bernanke needed to resist the professorial use of an adverb in the phrase "unusually uncertain". Reuters

b. Negative Impact on GDP from the Federal Reserve's Jihad Against Savers: One point, which is frequently overlooked, is the negative impacts on growth arising from zero short term rates. Savers are deprived of hundreds of billions of dollars in income. As a result, retirees and others dependent on income from savings have cut back on spending.

c. Bad Day for Regional Banks: Yesterday was a particularly unpleasant day for regional bank stocks. And Bank of America continues to slide, falling another 41 cents to close at $13.36. BAC has declined 13.19% from the $15.39 close on 7/15. While I am picking my own regional bank stocks, as part of a long term basket strategy, there are several ETFs for this sector as noted in this article in TheStreet. KRE is from SPDR and tracks the KBW regional bank index. It has a .35% expense ratio and the dividend yield would be less than 1.5%. My basket has over a 4% yield at my cost. One reason for the difference in yield between KRE and my basket is that KRE owns a significant number of regional banks which have cut their dividends to a penny a quarter, and I have a limited number of those. I have already sold some of those for good gains like EWBC which has a 2.64% weight in KRE. This ETF fell 4.6% in trading yesterday to close at $22.21, much worse than the S & P 500 decline of 1.28%. KRE: Summary for SPDR KBW Regional Banking ETF The other one mentioned in TheStreet article is IAT from iShares with a .48% expense ratio. The focus of that one is more toward the large regional banks, such as PNC, SunTrust, US Bank, BB & T, Regions and Fifth Third and those type of institutions are not even included in KRE. IAT faired better than KRE yesterday falling 2.51% to $21.78. Lastly, I would just mention there is a HOLDRS ETF for Regional Banks: Regional Bank. I have no interest in that one. For one, it has some trash in it, and I would not regard Bank of America and J P Morgan as regional banks either.

d. WSJ Article on Fox's Deliberate Deception in the Case of Ms. Sherrod: Even the WSJ has now pointed out how Fox deliberately misled the public in the case of Shirley Sherrod, as her speech was without question edited in such a way to change its meaning and to appeal to Fox's reactionary core audience. True conservatives can easily spot reactionaries posing as conservatives. It is important to distinguish true conservatism from the rants of those masquerading as such.

As I would expect, the pseudo-conservatives writing for NewsBusters, who routinely spew their biases in virtually every sentence complaining about the alleged bias of all media outlets other than Fox and Rush Limbaugh, quickly facilitated the spread of Fox's deception. has a front page article on Fox's deception. While a truly fair and balanced person with average intelligence will detect bias in all media outlets, Fox is just totally out of balance, almost all of the time.

1. Coca Cola (owned): The Coca-Cola Company reported earnings per share of $1.06, excluding restructuring charges, beating estimates by 3 cents. Volume in North America sales was up 2%. Currency neutral sales increased 5% in the quarter. Year to date cash from operations increased by 18%. Latin America volume grew by 7%, and there was a Eurasia/Africa volume increased 10%. India is providing excellent growth with a 22% increase.

2. Hudson City Bancorp (HCBK)(owned- Regional Bank Stocks basket strategy): Hudson City Bancorp reported earnings of 142.6 million in the 2nd quarter or 29 cents, up from 26 cents earned in the 2009 linked quarter. This was one cent above the consensus estimate. The CEO stated that he believes real estate markets are stabilizing.

The CEO added that most of the provisions of the recently enacted financial reform legislation will not impact HCBK. The recently enacted financial reform bill does not address the root cause of the Near Depression because the Democrats refused to address it. Without a doubt, the underlying cause was an improvident expansion of credit which fueled a bubble in real estate prices. Part of that expansion originated from Fannie and Freddie as part of the Democrats' policy of providing loans to those unable to afford the payments.

The net interest margin for Hudson is very low at just 2.13%. The efficiency ratio was 18.42% which is very good. This ratio is calculated by dividing non-interest expense by the sum of net interest income and non-interest income. The ratio of charge-offs to average loans was .29%.

The allowance of loan losses to non-performing loans was very low at 24.42%. That kind of number can be troublesome, particularly when this ratio was over 100% before the onset of the Near Depression. It could portend a surprise allowance in the future. There is just no way for me to know whether management is adequately provisioning for loans that are already classified as nonperforming. Non-performing loans to total loans was at 2.46%. All numbers are as of 6/30/2010.

A discussion of this last earnings report can be found in this article at TheStreet. A historical reason justifying the purchase of HCBK for dividend growth is provided in figures 7A and 7B in this Seeking Alpha article. A more detailed discussion of HCBK by Chuck Carnevale, the author of that Seeking Alpha article, can be found at Seeking Alpha.

HCBK fell 65 cents or 5.12% to close at $12.05 yesterday. The 52 week range is between $12 and $14.75. The stock is also trading below its 50 and 200 day moving averages by a tad. Hudson City Bancorp, Inc. Share Price Chart | HCBK

3. Renasant (RNST)(owned-regional bank basket strategy): Renasant Corporation had another lackluster, barely adequate, quarterly earnings report for the 2nd quarter. Net income was 3.796 million or 18 cents, down 1 cent from the 2nd quarter of 2009. The consensus estimate was 20 cents. The current quarterly cash dividend is 17 cents per share. The capital ratios remained in excess of well capitalized levels with the Tier 1 leveraged capital ratio at 8.78%. The net interest margin was 3.15%. Nonperforming loans to total loans is high for the stocks in my regional bank basket at 2.86%. The same is true for the nonperforming assets to total assets ratio at 3.66%. The allowance for loan losses to non-performing loans is 63.63%. I would like to see a higher number since a number over 100% cuts down on later unpleasant surprises from management. Tangible book value is $10.51 per share. I see no reason to sell my shares or to add to the 50 shares previously bought unless the share price falls into the $10 to $11 area. Bought 50 RNST at 14.14

Renasant fell 7.33% or $1.05 to close at $13.28 yesterday.

4. Roche (no longer own): Sometimes the Old Geezer manages to do what turns out to be the right course of action for the wrong reason. During the OG's recent brief stay at the helm of the trading desk here at HQ, the OG sold the 100 shares of RHHBY at $36.2, realizing a small profit. The entire profit was due to the Swiss Franc's rise against the USD during the brief holding period. The decision to sell Roche was not based on a deep analysis that is the forte of the LB and far beyond the meager abilities of the OG. Instead, the OG just got the shakes last Thursday during a nasty market decline (^DJI: Historical Prices) , and had to sell something that day to relieve his stress. Unknown to any staff member at HQ, new trials of Avastin's use in the treatment of breast cancer showed no benefit to the drug. RB just said that the OG is both wise and just even if he sometimes forgets what he is going to say just before reaching the verb in his sentence.

On Tuesday, a FDA panel recommended that the FDA withdraw its marketing approval for Avastin's use in breast cancer cases. This does not impact Avastin's use for the treatment of brain, lung, colon and kidney cancer Reuters Avastin sales for breast cancer are estimated at around 1.2 billion dollars worldwide in 2010. Bloomberg While a withdrawal of marketing approval in the U.S. will have a lower impact, it is hard to see how other nations will allow Roche to market Avastin for breast cancer after reviewing the results from these new trials.

Once again, the OG somehow dodged a bullet by selling Roche shares just prior to the release of this news. The only explanation is that the Lord must look out for the both the U.S. and its OGs.

I may look for a re-entry point at a lower price than now, possibly around $30 to $31. RHHBY fell about 3 bucks in the days following the 7/16 release of the FDA's staff recommendation on Avastin's use in breast cancer cases. Reuters

5. Added 50 Hudson City Bancorp (HCBK)(Regional Bank Stocks Basket Strategy) (see Disclaimer): While LB was absorbed in the fine details of revising Trading Rule #1,024,324,450,234 (B)(1)(a)(iii), the fiendish RB seized control of the trading desk here at HQ, and was in the process of entering an order for 5000 shares of HCBK, muttering incoherently something about "watch the real man of action do his thing". LB quickly acted to delete two of the zeros in the order before RB sent it, all that was possible under the exigent circumstances. RB was nonetheless successful in buying 50 shares of HCBK at $12.15.

The LB had just provided the details in the minutes (item # 2 above), explaining in detail why no shares should be bought, which had no impact whatsoever on the Lame Brain.

RB replied that the bankers running HCBK knew a lot more than the NERD about proper reserve allowances, whatever that was. And RB remembers that Hudson was listed as one of the six regional bank stocks with solid dividends in this article from TheStreet, and Headknocker likes dividends better than ice cream, which the RB is going to devour right now, all of this is just too much work anyhow for the RB, time to party.

The yield at a total cost of $12.15 is around 4.94%. Dividends on the 100 shares will be taken in additional shares.

6. RB Adds 50 MDT at 36.35 (see Disclaimer): Unknown to the LB, the RB had entered a limit order to buy 50 MDT during its takeover of the trading desk, then left without providing notice to consume a quart of ice cream without a care in the world. And it goes without saying that the RB would never listen to Uncle Ben doing his best imitation of Alan Abelson yesterday afternoon. After Uncle Ben started to talk, the market swooned and the MDT price cascaded further down, slicing through the limit order at $36.35 on the way down to $35.92.

But, LB understands that the RBs of the world were in charge of the price action in MDT yesterday. The Brain Dead, Lame Brains were selling MDT down to less than 10 times forward earnings because sales of Boston Scientific's defibrillator recovered more than expected from the lost sales due to a recent recall. TheStreet Only Master of Disasters and assorted knuckleheads would make a decision based on such criteria. MDT benefited from that recall last quarter. It was a one quarter event. Everybody knew it was a one quarter event.

RB wants everyone to know that anyone who disagrees with the Prima Donna is referred to by the King of Picayune with a dictatorial complex of megalomaniac dimensions, using various terms, including Meathead, Dullard, Lame Brain and Brain Dead, just some of the favorite characterizations used by the LB. RB would never use such offensive inconsiderate language to describe a fellow soul, and that is true even for the True Believers.

The consensus forecast is for MDT to have an E.P.S. of $3.49 in the F/Y ending in April 2011 and $3.82 in the F/Y ending in April 2012. At a total price of $36.5, this would result in a P/E of 9.52 on the estimated earning for the F/Y ending in April 2012 and 10.46 for the current fiscal year. MDT: Analyst Estimates for Medtronic Inc.

7. Order Finally Restored at Trading Desk at 2:31 P.M. C.S.T. - LB Averages Down on HMA by Buying 50 shares at $6.75 (BABY STEPs-LB's Forte) (see Disclaimer). Well this one worked out in a way, sort of. This is a continuation of the repurchase of 100 HMA shares sold at 9.28. A few days ago I bought back 50 of those shares at 7.55 and mentioned that the other 50 would be bought on a fall below $7. The shares skidded below $7 yesterday, closing at $6.67, down 5.25% for the day. The reasons for purchasing shares was discussed in prior posts. (see Bought 100 HMA at $8.82 & Item # 5 Bought 50 HMA at 7.55)

8. Washington Trust (WASH)(owned-regional bank basket strategy): Washington Trust reported net income of 5.3 million or 33 cents per share, up from 23 cents in the 2nd quarter of 2009. This was in line with the consensus estimate. WASH: Analyst Estimates for Washington Trust Bancorp, Inc. Nonperforming assets were .89% of total assets, down from .95% as of 3/31/2010. Tangible equity to tangible assets was 6.95%. The tier 1 leverage ratio was 7.94%. The allowance for loan losses to nonaccrual loans was 123.08%, which I view as a comforting number. The net interest margin was below average at 2.82%. I am satisfied with the report but I do not plan to add any shares to the 100 bought at $15.26. The current dividend yield at my purchase price is good at 5.5%.

9. First Bancorp (FNLC)(owned-regional bank basket strategy) The First Bancorp reported net income of 3.2 million or 29 cents per share. The one analyst following this bank had estimated earnings at 23 cents per share. Nonperforming loans were at 2.53% of total loans. Tangible book value was at $10.05 per share. The dividend is currently 78 cents per year. At the closing price yesterday of $12.37, the yield would be about 6.3%. I bought 50 shares of FNLC at 13.6 and may average down with another 50 share purchase at some point.

In the press release the CEO noted that the bank has increased its total risk-based capital ratio from 11.1% to 15.29% over the last year and a half, and 10% is considered well capitalized by the FDIC. He did not make a reference to the continued existence of 25 million in TARP money on the balance sheet. The government's preferred stock is part of the bank's equity. Obviously, I would much prefer a good capital ratio without government preferred on the balance sheet (or TPs masquerading as equity capital).

10. Enterprise Bancorp (EBTC)(own-regional bank basket): This small bank based in Lowesll, Mass. reported net income of 2.6 million or 28 cents, up from 17 cents in the year ago quarter. There are no analyst estimates. The net interest margin was good at 4.46%. The total capital to risk weighted assets ratio was 11.26%. The bank did not participate in TARP. I recently averaged down on EBTC by buying 50 shares at 10.33, bringing the total to 100 shares. I may add up to another 50 shares.

RB wants to buy Yahoo back after its 8.49% decline to $13.91 yesterday. LB told the RB to shut up, or it will be smashed and eaten. LB sold 100 shares of YHOO without consulting the Lame Brain at 16.83 and that proves once again who is the real star of HQ's trading desk.

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