Friday, December 31, 2010

Bought: 60 TOBC at 21.75, 50 GSPRA at 21, 50 FTE at 20.83, 100 NSSC at $1.8

1. Rounded TOBC to 100 shares by Adding 60 at 21.75  (Regional Bank Stocks' basket strategy) (see Disclaimer):  This article from TheStreet is a roundup of ten high yielding bank dividend stocks, which has been a useful topic in the selection of stocks for my regional bank basket.  Of those ten, I own six of them:  NYB, TOBC, VLY, FNB, HCBK and FNFG.  After selling 1/2 of my position in Porter (PBIB), easily the worst performing stock in that basket and who had cut its dividend from 20 cents per quarter when I purchased the shares to 1 cent for the next quarter, I decided to use those proceeds to increase my position in Tower Bancorp  which is discussed at the following page in this article.  As mentioned in the article, Tower is trading at tangible book value with a forward price earnings ratio of 10.   The dividend yield at is around 5.1%.  Tower recently sold stock at $20.25, raising 47.8 million dollars in net proceeds.  SEC Filed Press Release 

The bank just completed the acquisition of First Chester County bank that had 23 branches primarily in Chester and Delaware counties in Pennsylvania, contiguous to Tower's existing geographic markets.  Form 8-K  Tower Bancorp, Inc. Completes Acquisition of First Chester County Corporation I am still concerned about the acquisition of First Chester, given its high level of loan losses and the other issues discussed in the foregoing Form 8-K.  After reading First Chester's earnings reports (see e.g., I voted against the merger proposal as a Tower shareholder.  And my concerns about this acquisition caused me to limit my purchase originally to just 40 shares.   On the potential positive side, the merger was a potentially attractive and cheaper way to acquire customers and branches in a contiguous geographic market.  Notwithstanding the foregoing, I decided to risk some more funds given my current assessment of the  potential upside at the current price.      My previous buy of just 40 shares at 21.35 last July.  I suspect that TOBC has been left behind in the regional bank rally due to its First Chester acquisition.   

This is a link to Form 10-Q for Tower's Q/E 9/2010 which I discussed in a prior post: ITEM # 1 TOBC 

This is a link to a map of Tower's branches: Tower Bancorp, Inc.

2. Bought 50 GSPRA at $21 (see Disclaimer):  I have bought and sold shares of GSPRA earlier in the year.  Sold 100 GSPRA at $21.9 Sold 50 GSPRA at 20.03  Bought 50 GSPRA at 18.8  GSPRA is a non-cumulative floating rate preferred stock which pays the greater of 3.75% or .75% above the 3 month LIBOR rate on a $25 par value.  This is a link to the Goldman Sachs sites that describes the terms of its three floating rate equity preferred stocks (GSPRA, GSPRC, GSPRD).  My main post discussing this type of security is Advantages and Disadvantages of Equity Preferred Floating Rate Securities.

There are a few reasons for buying this security back in a small amount.  GSPRA does pay qualified dividends, and I do not have to worry now about the extension of the qualified dividend rate for all taxpayers.  I bought this security in a taxable account and will only buy one of the Synthetic Floaters  tied to a GS bond  in the retirement accounts (PYT & GYB tied to 2034 Junior Bond, GJS to 2033 senior bond).  In addition I would hope that the Federal Reserve's Jihad against savers will end in 2011.  If short rates thereafter start to rise to more normal levels over time, then the Libor float provision of this security will be triggered when that short rate exceeds 3% during the relevant computation period.    Of course, the current rate is the guarantee of 3.75%.  At a total cost of $21, the guarantee will yield about 4.46%. 

GSPRA Prospectus:   SEC GOV 

This is a link to historical information on the LIBOR Rates, 

I have also compared the GS equity preferred stock floaters with three synthetic floaters that contain GS bonds in  GOLDMAN SACHS FLOATERS, with the comparison made on price information from October 2, 2009.

See also:  Goldman Sachs Synthetic Floaters and Floating Rate Non-Cumulative Preferred (April 2009).

3. Bought 50 FTE at 20.83 (see Disclaimer): I bought and sold France Telecom (FTE) shares earlier in the year.  Bought 50 FTE at 21.09   Bought 50 FTE at $20.47  Sold 50 FTE @ 23.18  FTE pays a good dividend, with distributions generally made semi-annually in June and August.   France Telecom SA, FTE I held the shares long enough during my last cycle of ownership to receive the August distribution.  As discussed in prior posts, the price of these ADRs will reflect the exchange rate between the Euro and the USD.  Yesterday, the shares traded in Paris (FTE.PA) closed at €15.71, roughly equal to 20.88 USDs. Currency Converter 

Assume the Euro rallies to $1.57 (the exchange rate on 7/8/2008), and the Paris shares closed at €15.71, then I would expect the ADRs to be priced at $24.72.  On the other hand, what if the EURO fell to $1.19 (exchange rate for 6/7/2010), and the Paris shares closed again at €15.71, then I would expect FTE to be at $18.72.  So, I just want to drive this point home again about how exchange rates will impact the value of the ADR shares.   

Ideally, I want to buy a ADR for a European company when both the EURO is weak against the dollar and the share price in the firm's home market has slid to tempting valuation levels.    International Trading and Currency Risks Bought 100 AXAHY at 14.69 ADDED 50 NABZY AT 19.51 (National Australia Bank Strong U.S. Dollar + Weak Market=Time to Start Looking Overseas  While the Euro has rallied some recently against the USD (EUR/USD Currency Conversion Chart), the FTE Paris listed shares have fallen from €17.36 on 11/2/2010, FRANCE TELECOM Stock Chart | FTE.PA, and the Euro has slid some too since that date falling from about $1.40 to $1.33 which gives me a better entry point for FTE than in early November.  

S & P has a 12 month price target of $25 and rates this stock three stars.   Morningstar rates the stock five stars with a $34 fair value estimate.  The consensus estimate for 2011 is for earnings of $2.26 per share. 

FTE reported third quarter sales of €11.628 billion and a EBITDA margin of 36.5%.  Mobile subscribers increased 8% year-over-year to 114.5 million.  Revenues in FTE's Africa and the Middle East operations increased 9.8% excluding Egypt.  France Telecom Form 6-k

Price to book is 1.39 and price to sales is .93 according to YF.   

4. Bought 100 NSSC at $1.80 (LOTTERY TICKET strategy)(See Disclaimer):  I have previously bought and sold Napco Security (NSSC) in the lottery ticket category:  Buy 100 NSSC at $1.02   Sold LT NSSC at $1.96

Napco is a manufacturer of security products, "encompassing intrusion and fire alarms, building access control systems and electronic locking devices".   

I have about 200 potential LT candidates that are listed in a watch portfolio at Yahoo Finance.   I look everyday to see if there is any news about those candidates that shows up at the bottom of this portfolio when I open it up.  I noticed a video interview with the President of NSSC at the  TheStreet TV.  This guy said that Napco's business was improving so that was enough to buy back just 100 shares at $1.8.  

I would note a few areas of concern.  This is a small company, with a market cap of around 34 million at the current price.  The number of officers and the level of their compensation would be consistent only with a significantly larger company in my opinion.  NSSC Profile   Also, the company has not been profitable on a GAAP basis for several quarters.  Napco lost 6 cents for the Q/E 9/30, an improvement over the 10 cent loss recorded in the comparable quarter for 2009.   Form 10-Q.    I was not surprised to see a substantial percentage number of no votes for two members of the Board up for re-election in 2010:  I suspect that this company could be easily absorbed by a private equity firm who would have no trouble cutting costs, starting with the early retirement of some or all of the officers.   So, barring that eventuality, I hope the President is telling the truth about the firm's current and future prospects.   

Price to book is around 1.07 and price to sales is  .52, according to YF.  There are no analyst estimates. 

NSSC closed at $1.69 yesterday, down 17 cents on above average volume. 

The five year chart is ugly:  NAPCO Security Technologies, In Stock Chart The stock was trading at over $10 in 2006.   HK mentioned that the LB, our new Head Trader here at HQ, needs to be reminded of Heaknocker's most important trading rule-buy stocks that only go up in value after their purchase.  

1 comment:

  1. Thank you for another year of valuable insights, not just about investing but also about politics (I said it before but say it again: you do your 'independent' name extremely proud, and I am always very pleased to notice that there are still sensible people left in the US besides those tea party nutters). Hope to read your posts in 2011 and many years after. Happy new year!