The unemployment report was better than expected, as private sector jobs increased by 67,000 compared to the forecast of a 41,000 gain. Employment Situation Summary The average workweek was unchanged at 34.2 hours. The alternative measure of unemployment, the U-6 number, increased to 16.7% in August from 16.5% in July. Table A-15. Alternative measures of labor underutilization The government raised its prior estimate for the number of private jobs created in July from 71,000 to 107,000. The average weekly earnings increased .3% and have increased 2.9% over the past year. In 2010, total hours worked has increased a 2.8% annualized rate.
In an interview on Thursday "Fast Money show, Wrong Way Rosenberg dismissed the positive components of the recent ISM manufacturing survey, such as the increase in the employment component to over 60, and instead focused on the drop in new orders from 53.5 to 53.1. After listening to him, I thought that the leading indicators in that report had fallen through the floor. W.W. is predicting that this ISM survey will be at 50 in 3 month. Of course, as one would expect, he dismissed a rise in new orders above 50 in early summer 2009. He refers to the economy as slowing down precipitously, and the economy is "skating on thin ice" in his opinion.
The ISM Services report for August jolted the market shortly after its release on Friday morning, falling to 51.5 from 54.3 in July. The expectation was for a reading of 53.5. The employment component fell from 50.9 to 48.2 in August. New orders fell to 52.4 from 56.7.
Jan Brewer, the GOP governor in Arizona, had the most embarrassing fifteen seconds on TV during the current mid-term election cycle, as she was unable to continue reading the opening statement prepared for her in a debate with her opponent. POLITICO.com Brewer made it clear afterwards that there would not be another debate.
1. Verizon (own): Verizon hiked its quarterly dividend 2.6%, an increase of 1.25 cents to 48.75 cents or $1.95 annually per share. After the stock fell below $27, resulting in a dividend yield of over 7%, I re-initiated a position by buying 100 shares at $26.74. The raise in the dividend increases the yield at a total cost of $26.74 to 7.29%.
2. Bought 100 AHLPRA at 22.54 in Roth IRA (see Disclaimer): AHLPRA is a non-cumulative equity preferred stock issued by Aspen Insurance. I had previously limited my buys of this security to a taxable account since it pays qualified dividends. My prior purchases were at $19.75 and at 22.35. I have not yet sold any shares. I discuss Aspen Insurance in the post discussing the last purchase in July: Item # 3 Bought 50 AHLPRA at 22.35 .
This is a link to the prospectus: www.sec.gov/. This security is currently paying a fixed coupon of 7.401% based on a $25 par value. That translates into a 8.21% yield at a total cost of $22.54. Dividends are paid quarterly with the next ex date on 9/13. The fixed coupon is paid until 1/2017. AHLPRA then becomes a floater paying a spread of 3.28% over the 3 month LIBOR rate.
Aspen (AHL) is a reinsurance company that is currently paying a common stock dividend, always an important consideration for an owner of equity preferred stock. The company reported diluted earnings of $1.22 per share for the Q/E 6/2010: e10vq The current consensus estimate is for earnings of $2.98 per share in 2010 and $3.71 in 2011. AHL Analyst Estimates According to the QuantumOnline.com (free site with registration), AHLPRA is currently rated investment grade by S & P at BBB- and junk by Moody's at Ba1.
3. Sold 300 JPC at $8.14 on Thursday (See Disclaimer): This CEF was bought at 7.62 in late July. This kind of security is too staid for our new Head Trader responsible for the Cisco purchase. JPC rose 8 cents on Friday to close at $8.22.
4. CPB (OWN): I bought shares of Campbell Soup near the end of the Dark Period. Bought CPB at 25.35 Buys of CPB LQD SYY XKK (sold the 1st shares purchased & currently own only those shares bought at $25.35) Campbell reported earnings for its fiscal 4th quarter of 33 cents, beating the consensus estimate by two cents. Sales fell 1% to 1.52 billion, below the consensus estimate of 1.6 billion. Campbell's forecasts earnings for the current fiscal year to be within its long range target of 5% to 7%.
CPB fell $1.11 or 2.97% on Friday to close at $36.21.
5. Sold 50 REPRB at $24.36 (see Disclaimer): REPRB is a trust preferred issue with a $25 par value and a 6.2% coupon, with a maturity date in 2034. In other words, a junior security with a lot of interest rate risk, selling at near par value and with a relatively low coupon. I bought those shares at 20.19 last July.
6. Bought 30 EFSC at $8.48 (Category 1 of the Regional Bank Stocks basket strategy & LOTTERY TICKET strategy)(See Disclaimer): Category 1 is the one where I will limit my exposure to less than $300. I currently have 10 regional bank stocks in Category 1 and 40 stocks in Category 2, where I can invest up to $2000 in each security.
Enterprise has 16 branch locations, located mostly in the metropolitan markets of Kansas City and St. Louis, Missouri and has recently expanded into Arizona with two locations. Enterprise Bank and Trust > Locations.
In July 2010, Enterprise acquired about 256 million in assets originated by the Arizona operations of a failed Oklahoma bank in an FDIC assisted transaction. July 2010 Press Release
The bank reported net income for the Q/E 6/2010 of $730,000 after preferred dividends or 1 cent per share. The bank expects the recently acquired Arizona operations to add 15 to 20 cents per share in earnings during 2010. exhibit99-1 As of 6/30/2010, the tangible common equity to tangible asset ratio was 6.23%; the total capital to risk-weighted assets was 14.41%; the NPAs to total assets was 3.23%; the allowance for loan losses to NPLs was 97%; and the net interest margin was 3.46%. The bank has not yet paid back the TARP funds. The capital ratios can be found at page 31 of the last filed 10q.
Enterprise received 35 million in TARP funds. www.sec.gov 8k. The government's preferred stock has a 5% dividend for the first five years and 9% thereafter.
The stock traded as high as 34 in 2006 and 33 in 2007. The current consensus estimate calls for break-even in 2010 and then 82 cents in 2011: EFSC Analyst Estimates
The FDIC facilitated acquisition of operations in Arizona is one reason for buying the common stock. It is better to enter that market in 2010 with the assistance of the FDIC then to have entered into Arizona in 2006-2009 without such assistance. However, the lack of meaningful earnings, the level of NPLs, and the continued presence of government funds providing equity on the balance sheet are reasons for limiting the purchase to what I call a Lottery Ticket.
7. SOLD 100 of the 200 IND at $22.4 (see Disclaimer):. IND is one of the ING hybrid securities. ING Hybrids: Links in one Post I no longer have an interest in it at its current price. The coupon is 7% on a $25 par value. This leaves me with 100 shares of IND in a taxable account and 50 shares of INZ in a regular IRA. I have no intention of selling the INZ bought at 7.82 in February 2009. This will generate a 22.5% yield at that cost, and money doubles in 3.42 years at that rate. Estimate Compound Interest
8. Added 50 shares of the CEF RMT at 7.63 (See Disclaimer): RMT is the symbol for the Royce Micro-Cap Trust closed end fund. I have been adding shares over the past several months when the discount to net asset value was over 16%. On Thursday 9/2/2010, the NAV was $9.03 per share and RMT closed at $7.56. That translates into a 16.28% discount to net asset value. The shares closed on Friday at $7.70 with a NAV of $9.19, creating a discount to NAV of 16.21%.
RMT ended its managed distribution policy in 2009 and has not paid a dividend since that time. As a result, this CEF's discount to NAV expanded from less than 10% to over 15%. The Morningstar page has a chart showing the monthly discount, and this vividly shows an immediate expansion in the discount after the fund discontinued the dividend. I support what the fund did since I am not a fan of continuing dividends supported by a return of capital.
The fund does have a good long term track record investing in micro cap stocks with a 9.77% annualized return since inception in December 1993, as of 6/30/2010.
The last filed shareholder report for the semi-annual period ending in 6/2010 can be accessed at www.sec.gov.
Information about this funds NAV can be found at the Closed-End Fund Association, the WSJ.com, and at the sponsors site for the Royce Micro-Cap Trust.
I had two more trades on Friday which I will discuss in the next post.