The preceding table contains the CEF positions currently held. This is a balanced portfolio within a portfolio. By balance, I am referring to a fairly typical bond/stock allocation for someone my age, and then a further division within each of those broad categories (e.g. for stocks, into different market caps, sectors and regions). I have added to some positions, while deleting EBI, since this table was last posted in June: Added 100 MSF at 13.57 Some of the adds include 200 GDV, 50 RMT, CSQ, IGD (discussed in item # 9 below) and 50 ADX. Added 200 GDV at 13.33/ Bought 100 of the CEF CSQ in Roth at 8.49 Added 50 ADX at 9.7 and 50 RMT at 7.82 with Cash Flow
1. Kraft (own): I have traded in and out of KFT several times over the past two years, with the last 100 shares bought at 29.86. After the close yesterday, Kraft Foods beat the consensus estimate by 8 cents reporting earnings per share of 60 cents excluding non-recurring items. Kraft reaffirmed 2010 operating guidance of at least $2 per share. KFT also increased its estimate of cost synergies from the Cadbury acquisition to at least 750 million, up 75 million from its previous forecast. Gross margins increased from 35.9% in the 2009 quarter to 38.3% of sales.
2. Bought 50 Provident Financial Services (PFS) at 12.74 on Wednesday (category 2- Regional Bank Stocks basket strategy) (see Disclaimer): Provident is based in New Jersey and has around 81 full service branches in the New Jersey counties of Hudson, Bergen, Essex, Mercer, Middlesex, Monmouth, Morris, Ocean, Passaic, Somerset and Union. Provident reported net income of 12.9 million or 23 cents per share for the second quarter of 2010, up from 11 cents per share in the 2nd quarter of 2009. The bank did not participate in TARP: www.sec.gov
As of 6/30/2010, the net interest margin was 3.48%; the efficiency ratio was 56.44%; NPLs to total loans was at 2.15%; NPAs to total assets was 1.43%; and allowance for loans losses to NPLs was 65.98%. I did not see the capital ratios set out in this earnings release. The capital ratios set out in the last filed Form 10-Q at page 25 for the Q/E 3/2010 were in excess of well capitalized levels.
The consensus estimate for 2011 earnings from 7 analysts is $1.02: PFS: Analyst Estimates for Provident Financial Services Co
PFS closed at $12.53 on Thursday, down 26 cents.
3. Sold 50 of the 100 AFE at $24.59 on Wednesday (see Disclaimer): I sold the 50 shares of AFE held in the Roth IRA as it approached par value. I bought those shares in June at $23.17. I received one quarterly interest payment. At $24.59 the yield slipped below 7.4% for this senior bond maturing in 2034. As I have discussed, I may be far more concerned now about interest rate risk for long bonds than most investors. I am keeping the shares for now bought at 22.87 in a taxable account.
4. Pinnacle West (PNW)(own): Pinnacle West, an electric utility operating in Arizona, reported second quarter net income of 114.8 million or $1.07 per share, up form 69 cents in the linked quarter. Excluding earnings from discontinued operations, PNW earned 83 cents per share compared to 75 cents on that basis in the 2009 linked quarter. PNW reiterated its 2010 guidance of $2.95 to $3.10. PNW is a non-core electric utility holding. I recently pared the position: Pared PNW at 39.25
5. News Corporation (NWSA)(own): News Corporation reported net income of 875 million or 33 cents per share. The consensus estimate was for 20 cents. Revenues increased 6% to 8.11 billion. My last purchase of NWSA shares was in 2008 at $6.65 and I currently own about 120. NWSA However, those results included a number of one time gains which was partially offset by a 217 million dollar impairment charge. The NYT claims that the E.P.S. number was 30 excluding items.
NWSA was up 50 cents or 3.61% yesterday, closing at $14.35.
6. Apollo Investment (AINV)(own): Apollo Investment Corporation declared a 28 cent per share quarterly dividend and reported net investment income of 22 cents per share. Net asset value per share was $9.51 as of 6/30/2010. Analysts were expecting 25 cents. This BDC is an underwhelming investment. LB blames the Old Geezer for keeping it around. While AINV shareholders have not fared that well over the past few years, Chart, the Masters of the Universe who run this BDC have done well for themselves in compensation. AINV did file a Form 10-Q with the SEC yesterday for the latest quarter. The net asset value was $14.27 as of 3/31/2005.
AINV deservedly fell 6.1% to close at $10 yesterday.
7. Added 50 JZJ at $24.75 Yesterday (see Disclaimer): I have discussed this trust certificate containing a senior AT & T bond since starting this blog in October 2008. Some of the discussions can be found in the following posts: JZE: MORE DETAIL Trust Certificate JZJ AT & T BOND Added to Long Bond Positions: AT & T Senior Bond/JZJ Some Nibbles Got Filled: JZE, PJS, INZ and FAX
Yesterday's purchase of 50 shares rounded my lot to 200 shares in a taxable account. The previous shares were acquired in 2008 at a total average cost of $17.97 including commission.
The coupon of the underlying AT & T bond is adjustable, but has a minimum guarantee of 8%. JZJ has a lower guarantee of 6.375% which is the current coupon rate of this $25 par value TC. As previously discussed in detail, the rate of the underlying bond can be adjusted up or down 1/4% by a one notch upgrade or downgrade in the bond's rating by Moody's or S & P. When this bond was originally issued, AT & T was a long distance company and was subsequently acquired by SBC Communications, a large regional phone company. This improved the rating of the original AT & T bond by several notches, so the interest rate on the underlying bond was reduced from 8.75% to the guarantee of 8% as a result of the rating upgrades.(SBC changed its name to AT & T after the acquisition and subsequently acquired BellSouth) All of the TCs containing this same bond likewise had their starting rates reduced by the upgrades. JZJ started at 7.125% and hit its guarantee of 6.375% due to the ratings upgrades of the underlying AT & T bond by the ratings agencies. The adjustable rate feature of this TC and the underlying bond are explained in the prospectus: www.sec.gov
I have also mentioned that the underlying bond is now trading at a substantial premium to its par value. When I bought JZJ yesterday, the underlying bond was trading at over a 32% premium to its par value. FINRA I have stated that any of the TCs containing this AT & T bond could be called at anytime by AT & T or the owner of the call warrant. (see More on the Call Warrant in TCs & Call Warrants and Trust Certificates for a discussion of the call warrant provision and how this will impact the price of a TC when the underlying bond is trading at a premium to its par value)
Yesterday, I noticed that GJF, a TC containing the same AT & T bond, was called by the call warrant holder. Synthetic Fixed-Income Securities, Inc. Announces Conditional Redemption of STRATS (SM) Trust for AT&T Securities, Series 2004-4 - WSJ.com I no longer own GJF, having previously sold my position. Sold 50 GJF at 24.25 This means that the owners of GJF will receive the $25 par value for this security plus accrued interest. I own another TC JZE, bought at $12.5, that contains the same AT & T bond. Both GJF and JZE are slightly different than JZJ, in that their guarantees are 6% compared to the 6.375% of JZJ. Notwithstanding that fact, which gives JZJ a better yield than JZE now, JZE is selling at over par value whereas I bought JZJ at a small discount to par.
It really makes sense for the owner of the call warrant to exercise that warrant. The TC owners receive par value plus accrued interest and the owner of the call warrant could turn around and sell the underlying bonds for a 30+% profit. While the call warrant has not been exercised yet for JZE and JZJ, it would make sense for this to happen, which also recently took place for XFL that I also owned.
So, if it does happen, I will realized a long term gain on the shares in JZE and JZJ acquired in 2008 and a small profit plus interest on the JZJ shares acquired yesterday.
The current yield on JZJ at a total cost of $24.75 would be about 6.44%. If either S & P or Moody's downgrades the debt one notch, the yield would rise to 6.69%. I mentioned in an earlier post that S & P was considering whether or not to downgrade AT & T's debt by one notch.
When I sold a TP from US Bank recently, I mentioned that it was possible to buy a senior bond maturing sooner than that TP with a higher yield. Sold 50 USBPRF at 23.94 JZJ would be one example. The TP is in effect a junior bond whose interest payments can be deferred, whereas the owner of JZJ does not have to worry about deferral, only bankruptcy.
The SEC filings for JZJ can be found at Search Results. This is a link to the last trustee's report from May 2010 summarizing the interest distributions to the owners of this TC: Trustee's Distribution Statement to the Corporate Backed Trust Certificates The trustee collects the interest payments made by AT &T and then distributes those funds to the owners of the TCs.
8. SOLD 50 PJS at $25.45 Yesterday (See Disclaimer): This TC was just bought at 23.73. Although this TC will go ex interest soon, I have no interest in it at over par value. More importantly, as a psychological issue for the OG, I do not want to muck up my good record trading this TC, which I am prone to do sometimes after going to the well one time too much. Sold ALL PJS at 24.65 and 24.75 Bought PJS at $7.2 Bought 50 PJS at $17.8 in Roth Bought 50 PJS at 17.95
Headknocker noted that PJS traded at $26.32 after the OG sold 50 at $25.45 and wanted to know why the OG donated over $40 of HK's capital to that unknown buyer. OG replied that individuals were bidding up prices of these TCs, searching for yield wherever they can find it, and some may be buying the next interest payment by bidding up the price. And the OG noted that PJS closed the day at $25.89.
9. Bought 100 IGD in the Roth IRA at $10.94 (see Disclaimer): I own about 233 shares of the CEF IGD in a taxable account and quit using the dividends to buy additional shares in March 2009. Until fairly recently, this CEF was selling a premium to its net asset value. As shown in the graph at Morningstar page for IGD, the premium was hitting 10-11% in 2010. IGD pays a monthly dividend, always viewed as desirable, and that dividend was recently cut from $.125 to $.10 per share. This resulted in a correction in the stock price to the point where this CEF was selling at a small discount to its NAV. Even at the reduced rate, the annual dividend of $1.2 results in a dividend yield of 10.96% at a total cost of $10.94. This CEF is a stock CEF investing globally. ING Global Equity Dividend and Premium Opportunity Fund - Overview It buys puts to protect against market declines and writes calls to "potentially" add to returns and to reduce volatility.
For the time being I am using exchange traded principal protected notes and stock CEFs that have high yields to increase my equity exposure in the retirement accounts. Another recent buy along this line is JSN: Bought 100 JSN at 12.8 in regular IRA The accounts are still bond heavy with over a 90% allocation to individual bonds (mostly TCs), preferred and trust preferred securities, and bond funds (primarily term bond CEFs and ETFs).
10. Brooks Automation (BRKS)(own-Lottery Ticket category): BRKS was a recent add: Bought BKRS at 7.72. The company beat the consensus estimate by 5 cents reporting net income of 26 cents per share on a 257.3% increase in revenues. The CEO made the following comment about the quarter in the press release: "Business activity continues to be strong across our entire portfolio of critical component and system solutions. Over the course of twelve months, our top line has more than tripled and today we are delivering the best operating performance in the entire history of Brooks."
Cash and marketable securities at the end of the quarter totaled 104.1 million.
LB is embarrassed by the OG's other trades on Thursday and declines to discuss them to preserve the reputation of the storied HQ trading operation. LB wants our Great Leader to know that it is willing to make a good faith effort to work more than 24/7 to advance HK's capital position, and is willing to return as the HT provided no criticism is leveled against it in case LB fails to work more than 24/7. LB would add for HK's consideration that there was another blowup in one of HK's 400 or positions yesterday, and the OG was responsible for it, almost as bad as PBI on Wednesday.
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