Friday, October 15, 2010

Bought: 200 SRQ-UN.TO @7.53 CAD, 50 DKW @ 23.07, 50 TRK @ 15.77, 50 ISCA @ 23, & 150 CHW @8.2/Sold: 50 GJP at 23.31, 50 JZS @24.15

There was some blowback yesterday to David Einhorn's skewering of St Joe (JOE) at an investor's conference. The Fairholme Fund, managed by Bruce Berkowitz, bought 135,600 shares on Wednesday, raising its stake to 29% of the outstanding shares. Some would say, "in for a penny in for a pound". A few analysts called Einhorn's presentation overblown.

1. Bought 200 SCOTT'S REAL ESTATE INVESTMENT TRUST (SRQ-UN.TO) at $7.53 CAD (See Disclaimer): The CAD is close to parity now with the USD (see FXC, the currency ETF for the Canadian Dollar and CAD/USD). This is a link to the five year chart on the exchange rate: CAD/USD Currency Conversion Chart

I attempted to buy this Canadian REIT on Tuesday, but the Fidelity system would not allow me to place the trade. This particular REIT manages 207 retail properties in Canada. These properties are "small box" properties Scott's REIT - Real Estate Investment Trust - Homepage - 2010 Dividends are paid monthly at the current rate of $.0708 CAD or 84.96 Canadian cents annually. At that rate, the yield is 11.28% at a total cost of 7.53 CAD. The 207 properties owned by this REIT "are located in fast growing, high traffic centres in both urban and non-urban areas. The portfolio of Scott's REIT includes properties in Ontario (83), Qu├ębec (74), Nova Scotia (15), Alberta (12), New Brunswick (9), Manitoba (8) and British Columbia (6)" Property Information - 2010 The last quarterly report can be found at the firm's web site at I will take the dividends in Canadian dollars. I view this kind of purchase simply as a means to earn some kind of return on my long term position in Canadian dollars.

2. SOLD 50 GJP at 23.31 & Bought 150 CHW in the ROTH IRA on Wednesday (see Disclaimer): GJP is a Synthetic Floater that pays the greater of 3% or 1.15% over the 3 month treasury bill, but no greater than 8%. The underlying security is a senior bond from Dominion Resources: While I am comfortable with the credit risk, I would prefer to take my profit on the shares-again, rather than to continue collecting the 3% coupon applied to the $25 par value. The shares had popped 3.6% on Wednesday which caused me to sell into it.

This security does make monthly distributions, which is always viewed as a plus. So, in the event it dips back to $20, I would consider buying it again. The shares sold on Wednesday were bought at 20.55 last July.

I replaced GJP with 150 shares of the CEF CHW, previously purchased in a taxable account at 7.2. I adequately discuss that CEF in the foregoing linked post. Calamos Global Dynamic Income Fund On Wednesday, the day of my last purchase, CHW closed at $8.18 and had a net asset value of $9.18, creating a discount to NAV of -10.89%. Dividends are paid monthly, and the current rate is 5 cents per share. If that rate continued, the yield at a total cost of $8.2 would be about 7.31%.

3. Bought 50 shares of Speedway Motorsports (TRK) at $15.77 and 50 shares of International Speedway (ISCA) at 23 on Wednesday (See Disclaimer): These two companies dominant motor sports in the U.S. and both have been beaten down due to declines in revenues and profits caused by the recession and high unemployment. Before the latest financial calamity got a head of steam in 2008, ISCA was trading at over $50 per share in July 2007: ISCA Chart. And in July 2007, Speedway Motorsports was trading at over $40 per share. TRK Chart

Speedway Motorsports owns and operates several racetracks, including the Texas Motor Speedway, the Bristol Motor Speedway, the Atlanta Motor Speedway , the Charlotte Motor Speedway, the Las Vegas Motor Speedway, the Kentucky Speedway, and the Infineon Raceway in Sonoma Valley, CA. While these tracks sponsor a variety of races, the primary events are NASCAR races.

Due to the recession, revenues declined from 611 million to 550 million in 2009 and are likely to decline further in 2010. S & P currently estimates a 8.4% decline in 2010 revenue from 2009. Revenues for the last 3 month period for the quarter ending in June fell 7.4% from the year ago period (page 36: Form 10-Q). Part of that decline was a 12.7% fall in admissions revenue and a 13.9% decrease in event related revenue. TRK earned 57 cents per share during that quarter, compared to 82 cents in the year ago quarter. It would be reasonable to attribute the downturn in revenue and earnings to the recession as well as the currently high unemployment rate in the U.S., taking into account the fan base for Nascar racing. Many consumers have simply cut back on their spending on discretionary items such as attendance at Nascar races. Still, the fan base for Nascar events is huge and those races are the second largest spectator sport in the U.S.

Assuming the U.S. economy has already hit bottom and has started to recover, I would anticipate that fans will return to these events, pay more for their tickets, and spend more at the concession stands. Hopefully, this will increase earnings over time back to the level reached in 2006 which was $2.54 per share. (p. 54 3006 Annual Report Form 10-K)

For anyone unfamiliar with TRK, I would start by reviewing the last Annual Report for the 2009 year: Form 10-K

TRK used to pay a small annual dividend and instituted a quarterly dividend of 9 cents per share in 2009. That dividend was raised to 10 cents in 2010.

International Speedway has a larger market capitalization than TRK. It operates that largest track in the U.S., the Talladega Superspeedway, and the most widely recognized, the Daytona International Speedway. Both of these tracks have more than a 300,000 person seating capacity. Other facilities are noted on this map: Our Facilities - International Speedway Corporation

The last earnings report reflected the current problems in motorsports, as ISCA reported an E.P.S. of just 8 cents. 10q Excluding a number of items, the Non-GAAP was 25 cents compared to 33 cents in the year ago quarter. SEC Filed Press Release Price to book is currently less than 1 at the close on Wednesday. ISCA Key Statistics The five year expected P.E.G. is .35.

The current F/Y ends in November, and the consensus estimate is for $1.5 and a $1.67 for F/Y 2011. Analyst Estimates

For these two buys to work, time will be a requirement, along with a more robust economic recovery and a significant drop in unemployment and involuntary part-time work.

4. Pared Trade in Roth IRA: Sold 50 JZS at 24.15 and Bought 50 DKW at $23.07 in ROTH IRA on Thursday (see Disclaimer): This pared trade would not make any sense in a taxable account. Both JZS and DKW are trust certificates containing the same GS 2033 senior bond as the underlying security. JZS was recently bought at 22.95, so I made a small profit on the shares. Why do the switch?

For one, as I previously discussed in detail, I am playing these TCs with the 2033 senior bond in part due to a possible call by the owner of the call warrant. Both JZS and DKW have $25 par values, and DKW has the larger discount to par value at the prices yesterday. Consequently, it has almost a dollar per certificate greater potential for profit in the event of a call. Also, given its larger discount, its YTM would be higher in the event DKW was held to maturity. Another reason is that DKW had a slight yield advantage. At a total cost of $23.07, the current yield is about 6.1%. The yield of JZS at a total cost of $24.15 is around 6%. In order words, a slight advantage for DKW, hardly worth the trouble even in the Roth where no tax is paid on the JZS gain.

DKW Prospectus: Coupon 5.625%
JZS Prospectus: Coupon 5.8%

SEC filings for DKW can be accessed at the SEC's web site. DKW has 48 million in face amount of the GS 2033 senior bond in it: Trustee's Distribution Report

I do not know whether any of the owners of a call warrant attached to the fixed coupon TCs containing the 2033 GS bond will exercise it. I can only say that it would be profitable now for them to do so. The RB just said that it could not believe the NERD made this pared trade to pick up a few bucks. LB replied that Headknocker will likely never need the retirement accounts. And if he did, every dollar will count.

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