Tuesday, February 8, 2011

Factual Accuracy in American Politics As a Basis for Legal Claims?/Bought 70 PLXT at $3.37-a LT/Sold 1/2 Transglobe @ 11.04 CAD/SYY/BOUGHT 1 Albertsons Bond Maturing 2026

Yesterday, I discussed a lawsuit filed against Jimmy Carter for alleged factual inaccuracies made in a book published in 2006. Today, I just wanted to apply the rationale for that suit to some recent statements made by republican politicians.

While I am frequently critical of the Democrats' spending initiatives, I am becoming increasingly  dismayed about the GOP's liberal use of misrepresentation to solidify and expand their power.  Politicians who have difficulty telling the truth are a common species, and both parties can claim their fair share.  But when the lying becomes pervasive, it makes informed debate among the American population nearly impossible, since so many believe so strongly in demonstrably false information.  Lying does work in American politics, and is a tried and true method for achieving and preserving power.  

Some recent examples are explored in articles from fact check organizations like FactCheck.Org.   Several GOP politicians were recently asserting that the Democrats' health care law, which I do not support, will be "job-killing". As noted in a FactCheck article, that position badly misrepresents the facts. To provide cover for their assertions, the GOP politicians caused their staff to prepare a report coming to that inaccurate conclusion, and then they cite statements from the report as "proof" of their assertions. The GOP staff report also "badly misrepresents" a Congressional Budget Office study, according to FactCheck, and that kind of misrepresentation is intentional in my opinion. PolitiFact, another fact check organization, reaches the same conclusion, labeling  Eric Cantor's assertion as false. Cantor is the new GOP house leader. The FactCheck article also points out that independent and nonpartisan experts project a minimal impact on jobs. Another intentional misrepresentation is the frequently heard assertion that the the government has taken over healthcare under the recently enacted legislation, winner of PolitiFact's Lie of the Year award for 2010.  

Another article from FactCheck.org highlights a number of false statements made by Paul Ryan and the Tea Party favorite Michele Bachmann in their responses to Obama's State of the Union speech.  Michele, for example, claims that the bailout, passed under the Bush Presidency, cost the taxpayers 700 billion dollars.  I believe that the passage of this law saved the American financial system from collapse and the onset of another Great Depression which would have occurred if Michele had been in charge.   Putting that opinion aside, Michele has to know that her statement is just demonstrably false. The law originally had a 700 billion dollar maximum number, which was later reduced to 475 billion. The current estimate of the net cost is 25 billion according to the CBO.  Michele undoubtedly knows all of that but will persist in catering to the Know Nothings, a very powerful political force in the U.S., who are easily misled, and willing receptacles for misinformation that confirms a pre-existing belief.

This is a link to FactCheck's analysis of Obama's State of the Union speech, which found no demonstrable false factual assertions but some debatable ones.

For those who know something about TARP, the banks paid the treasury a 5% dividend, and many banks are still paying since they have not yet paid back the government.   The treasury was able to borrow money for far less than 5%, thereby making money on the spread between the cost of its borrowed funds and the dividends received from the banks. The U.S. also received warrants to buy stock in the financial institutions that received TARP funds, and those warrants have already and will continue to net the treasury a pure profit. Some TARP funds will not be paid back since some institutions failed even with that infusion of capital.

An article from yesterday's WSJ points out the spread between the 2 and 10 year treasury notes has been widening, an alert being sent by the bond market of increasing inflation risks.    

1. RB Bought 70 PLX Technology (PLXT) at $3.37 (LOTTERY TICKET strategy)(see Disclaimer): This one was found using the Morningstar screen for stocks selling at large discounts to Morningstar's estimate of fair value.  That firm rates PLXT as 4 stars and I did read the Mornginstar report available to subscribers.   I had never heard of the company before seeing it on that screen.  A number of LTs are found using screens with various types of criteria, frequently some combination of a healthy balance sheet, a relatively low price, and  one or more low ratios such as price to book, P.E.G., and/or price to sales.   How to Find Stocks Masquerading as Lottery Tickets (July 2009).

A description of this firm's business can be found at Reuters.com.  More information is available at PLX Technology : Official Home Page.

The stock was consistently selling between $8 to $12 per share between February 2006 and the end of 2007: PLX Technology, Inc

According to YF, price to sales is currently 1.26; price to book is 1.5; and cash per share is at $.53.

The last filed Form 10-Q for the Q/E 9/2010 shows 25 million in cash or cash equivalents and another 13.727 million in short term investments. In that quarter the company did report GAAP earnings of 3 cents per share based on net revenues of 30.324 million. At page 17 of that 10-Q, the company notes its acquisition in October 2010 of Teranectics, a fabless provider of "high-performance mixed semiconductors". While RB does not understand the following quote about Teranectics, it did say that Teranectics and its products sound really cool: "Teranetics provides state-of-the-art silicon solutions that enable 10 Gigabit per second rates over widely installed low-cost CAT6 and CAT6a cabling.  Teranetics’ products allow data centers and enterprise networks to increase scalability and improve throughput while dramatically lowering the cost of ownership for 10 Gigabit per second links."  Wow, RB was impressed and would undoubtedly be more impressed if it understood anything asserted in those quoted sentences.


The last earnings report can be found at PLX Technology, Inc. Reports Fourth Quarter, Fiscal Year 2010 Financial Results. In that quarter PLX reported a 17 cent loss per share and a sequential decline in revenues from the prior quarter.  The non-GAAP number was a 2 cent per share loss.  Cash and investments had shrunk to 23.579 million from 40.015 million at the end of 2009.   The company also issued revenue guidance for the 2011 1st quarter below the consensus forecast, as noted at the Reuter's Key Developments page.  The stock did drift down some after this earnings release on Monday, 1/24/2011. PLXT Historical Prices

The current consensus forecast (4 analysts) is for break-even in 2011.  I am hoping for a return to a $6 to $8 price within the next two years, based on an unexpected return to profitability later in 2011. That is more of a prayer than a forecast since the RB does not really understand the products made by this company.  A LT does not have to be understood at all since the maximum investment is $300 plus any prior profits made on the stock and/or dividends received from it.

In this category, I am looking at firm's whose stocks have already been beaten down, where there is at least some rationale reason to believe there is a realistic potential for an upside surprise.  Some of that potential is discussed in the Morningstar report, available to subscribers. Most of the LT selections are not excessively burdened by debt, many have no debt along with significant cash on the balance sheet for the size of the company, and the company has one or more low ratios, particularly price to sales.  So the company has to have some substance to it.

2. Sysco (own): Sysco reported net income of 258 million or 44 cents per share for its 2nd F/Y quarter ending 1/1/2011. The consensus forecast was for earnings of 47 cents. SYY blames a number of factors for the worse than expected results, including food inflation, and higher year-over-year fuel and pension costs.  This result was one cent below the earnings per share for the year ago comparable quarter.  The recent anemic earnings growth does suggest that Sysco will not be able to grow its dividend at the same rate as in the past. {See: Item # 1 SYSCO; Item # 4 Sysco} I am not reinvesting the dividend. My shares were purchased at $19.46 (3/9/2009 Post).

Sysco fell $1.84 per share, or 6.16%, yesterday to close at $28.01.  I consider that decline to be justified.

3. Sold 100 of the 200 shares of the Canadian REIT Transglobe Apartment (TGA-UN.TO) at 11.04 CAD (Canadian Dollar Strategy)(see Disclaimer): I pared my position in Transglobe by selling the highest cost shares, which were bought first  @ 10.58 CAD. I still own the lower cost shares bought a few weeks thereafter  at 10.3 CAD.  As with all of my Canadian REITs, Transglobe pays dividends monthly.

TRANSGLOBE APARTMENT REIT closed yesterday at $10.92 CAD, up 1 Canadian cent. The symbol on this foreign traded securities will vary depend on your broker or the financial web site.  There is no uniformity.  The symbol provided above is from Yahoo Finance. The symbol at Google Finance is TSE:TGA.UN. At Marketwatch, the symbol is CA:TGA:UN. To enter the trade at Fidelity, I would need to type TGA_UN:CA.

4. Bought 1 Albertsons Senior Bond Maturing in 2026 at 80 limit (80.8 with concession)(Junk Bond Ladder Strategy)(see Disclaimer): This brings me to $4000 in principal amount of SupeValu bonds. The three previous buys of just 1 bond each, all with different maturities,  are discussed in these posts:  1 SuperValu 7.5% Senior Bond Maturing 11/15/2014 1 SuperValu 8% Senior Bond Maturing 5/1/2016 1 Albertsons 7.45% Senior Bond (now part of SVU) Maturing 8/1/2029

The bond bought yesterday was originally issued by Albertsons which is now owned by SuperValu. It matures on 6/15/2026 and has a 7.75% coupon.

My current yield based on a total cost of 80.8 will be around 9.59% ($7.75 ÷ $80.8= 9.59%). According to the Morningstar Bond Calculator, the yield to maturity is higher at 10.43%, given the large discount to par value.  That yield assumes that I hold the bond to maturity and SupeValu is able to pay off the entire principal amount of the loan on 6/15/2026.

This is a link to the FINRA Information about this bond.  It is of course rated junk, B2 by Moody's and B by S & P.

This is a link to the original prospectus, issued in 1996: www.sec.gov

I am at least 1 bond over my comfort level for Supervalu senior bonds. After SVU's latest disappointing earnings report, the consensus earnings estimate has fallen, and now stands at $1.29 for F/Y 2011 ending in 2/2011 and $1.18 for the F/Y ending in February 2012,  SVU Analyst Estimates | SuperValu.   When I last mentioned that estimate, the consensus was for $1.48 per share in F/Y 2011, and that was just a few weeks ago. Item # 3  Bought 1 SuperValu Bond @ 97.8 Maturing 2014 (December 2010).  The common stock would be interesting as a LT, assuming the buyer was patient and had a very long time horizon.  

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