Friday, March 25, 2011

Nexen/Added 50 to LT XIN at 2.36/GIS/ADDED 35 to MDT at 37.46/Bought 1 Senior Albertsons' Bond Maturing 2030

I do not own the common shares in Nexen (NXY), a Canadian energy company.  I do own 50 shares of NXYPRB,  an exchange traded junior bond with a 7.375% coupon on a $25 par value. Bought 100 CBLPRC @ 24.36, 50 NXYPRB @ 25.15, 50 CIZN @ 18.7, 50 AF @ 12.08, 50 CSCO @ 19.55, 50 PSEC @ 9.97 in IRA On Wednesday (3/23/2011), I noticed that the common shares were falling almost 8%, eventually closing down $2.12 to $24.66.  There was no news listed at any of the financial sites to account for that drop.

Although I have only a small position in a bond, I was curious why the stock was declining when the consensus earnings estimate was for $2.22 in 2011 and $2.86 in 2012. Looking at those estimates, and seeing no news, I was tempted to use some of my Canadian dollars to buy some common shares, but decided to spend some time trying to figure out what was happening to the stock. I reviewed briefly Nexen's 2010 Annual Report, and I suspect the reason for the sudden drop can be found on page 14. Seventeen per cent of the firm's production before is from Yemen.  The turmoil in Yemen could easily lead to a regime change which would call into question the existing contractual arrangements with the current government. I would add that Nexen states that only 1% of its proven reserves before royalties comes from Yemen at the same page.
1. Added 50 to LT XIN at 2.36 On Tuesday (LOTTERY TICKET strategy)(see Disclaimer): RB has yet to be fortunate with its selection of Chinese micro caps in the LT category, the "investment" category designed to keep the RB from causing too much trouble. The previous purchase of 50 shares of Xinyuan Real Estate has so far failed to advance Headknocker's capital base. Bought 50 XIN at 2.57-LT  RB maintains strenuously that the fault lies with investors rather than its selection prowess. Needless to say, the other staff members here at HQ do not hold the RB's ability to crunch numbers, or to make analytical judgments, in high regard. LB would add that the Nit Wit's success over the past two years had to be the result of Divine Intervention, and would be about as likely to repeat as the Old Geezer hitting over .300 playing with the Yankees and bunting for all his hits, beating the throw to First Base with his "speed". LB just said that it would pay a small fortune just to the Old Goat trying to beat the throw.

Xinyuan is in the residential real estate development business, focusing on China's Tier II cities. Form 6-K As noted in its Annual Report, revenues increased 25.5% in the 4th quarter to USD $137.2 million, and net income increased 170% to USD $21.6 million. That equated to 28 cents per ADS share for the quarter. For 2010, diluted E.P.S. for the ADS shares was 66 cents. At a $2.36 price, the P/E on trailing 12 month earnings is 3.57. 

Although the stock has been in the dumps, the earnings for XIN have generally been good.  The consensus estimate is for an E.P.S. of $1 in 2011 and $1.14 in 2012: XIN Analyst Estimates | Xinyuan Real Estate Co  Two analysts contribute to that forecast.  If the Company earns $1 in 2011, the P/E at a $2.36 total cost is 2.36. 

According to Y F, price to sales is .41 and price to book is .35. The debt level is high but the company also has a lot of cash on the balance sheet too: Xinyuan Real Estate Co., Ltd. Announces Fourth Quarter and 2010 Full Year Financial Results

This is a link to Xinyuan's web site: Xinyuan (China) Real Estate

XIN closed at $2.37 yesterday. The chart for this company, like many LTs, does not provide any comfort:  XIN Interactive Chart 

2. General Mills (own)(Large Cap Valuation Strategy and Common Stock Dividend Growth strategy): General Mills reported earnings for its 2011 third quarter that met expectations. GAAP earnings for the quarter were 59 cents per share, up from 48 cents in the year ago quarter.  Excluding mark-to-market effects of certain commodity positions, adjusted diluted earnings per share would be 56 cents for the 2011 3rd quarter, up from 49 cents in the 2010 F/Y 3rd quarter.  Net sales for the last quarter grew just 2% to 3.65 billion.  Third quarter international sales were up 8% to 688 with pound volume contributing 6%.  GIS reaffirmed its F/Y 2011 guidance of low single digits growth in net sales and net earnings per share of $2.46 to $2.48 excluding a net tax benefit and mark-to-market effects.  At a $36 total cost per share, that would be a P/E of 14.57 at the mid-point of $2.47, and 13.43 based on the current analyst consensus of $2.68 for 2012. GIS Analyst Estimates I view those numbers as reasonable for a consumer staple company with relatively reliable earnings and dividend growth.  The dividend yield is over 3% at the $36 price and GIS has a long history of raising its dividends. 

Investors are focusing on the negatives now. The primary negative impacting most packaged food companies is the rise in commodity costs. GIS forecasts a 4 to 5 cent rise in its current F/Y, and further anticipates a greater rise in F/Y 2012. Who knows? Commodity prices go up and down, and I would not make a decision on the long term value of GIS shares based on what commodity prices might do in the coming months. Other investors will make decisions on no other factor but an imprecise short term forecast of such costs. 

I am reinvesting my dividends to buy additional shares. If the past is prologue, and sometimes it is, the reinvestment will hopefully prove beneficial as shown in this long term chart for GIS

I have noted a trade in GIS shares, made by the LB before a 2 for 1 stock split.  Sold General Mills at $60.47 (7/6/2009 Post)- Bought GIS at $48.52 (3/26/2009).  LB was subsequently reamed by Headknocker for five hours for its tunnel vision and trading mentality, and no head trader here at HQ will dare sell GIS again. Item # 7 General Mills  LB was heard to mutter "screw the HK, that Old Goat is past his prime".

GIS gained 31 cents in trading yesterday, closing at $36.55, after losing 67 cents on the day of its earnings release. 

3. Added 35 MDT at $37.46 on Wednesday (Large Cap Valuation Strategy)(see Disclaimer):  With this small purchase of MDT common shares, I am nearing my limit of $10,000 for securities issued by one company.  I only own MDT common stock and I have been reinvesting the dividend. MDT recently sold some senior notes at interest rates that do not interest me:  Medtronic Announces Public Offering of Senior Notes

While I have a profit in my MDT position, it is a small dollar amount given the size of the stake.  I have been nibbling at shares since purchasing some at a total cost of $27.34 on 3/4/2009, shortly after the RB committed a Coup d'Etat at the trading desk, dethroning the Nerd Machine as HT.

Unfortunately, most of the purchases thereafter were slightly above or below the current price.  Added to Medtronic at 37.58 (SEPT 2009) ADDED TO MDT at 38.99 (MAY 2010)  RB adds 50 MDT at 36.25 (JULY 2010) Added 30 MDT at 35.73 (AUG 2010).  MDT has substantially underperformed the market averages since my purchase at $37.58 in September 2009. Barrons had a favorable article about MDT in a February issue that I discussed briefly at Item # 1 MDT.  

The consensus forecast for MDT's fiscal year ending April 2012 is $3.63, MDT Analyst Estimates, or barely over 10 times forward earnings at my latest purchase price.  A portfolio manager at the Jensen Fund believes that MDT is poised for a break out.   I certainly hope that he is prescient on that belief.  TheStreet

The dividend is about 2.4% with a payout ratio of close to 29%, so there is room for dividend growth. 

MDT recently received approval for the first and only pacemaker for use in a MRI:  Medtronic Receives FDA Approval for First and Only Pacemaker System in the U.S. Designed for Use in the MRI Environment The company has also recently launched its new Activa neurostimulator for deep brain stimulation.  Deep Brain Stimulation System  It also recently launched in Europe its  Mapping Catheter.

Yesterday after the market closed, MDT announced that the FDA approved its next generation pacemakers: Reuters

Morningstar rates MDT 4 stars with a fair value estimate of $46 per share.

MDT rose 54 cents in trading yesterday to close at $38.22. 

4. Bought 1 Albertson's 8.7% Senior Bond Maturing 5/1/2030 at limit of 85.75 on Wednesday (Junk Bond Ladder Strategy)(see Disclaimer):  As noted in other posts discussing the purchase of Albertson bonds, this bond is now a SuperValu obligation.  This purchase brings me up to 5 SuperValu bonds, which is 2 more than my comfort level.   I am having some difficulty passing up the longer dated Albertson bonds given their current yields and potential for capital gains.  I noted in a post earlier this week that I intend to hold the 2014 and 2016 bonds until maturity, unless there is a significant deterioration in credit quality. 1 SuperValu 7.5% Senior Bond Maturing 11/15/2014 at 97.8  1 SuperValu 8% Senior Bond Maturing 5/1/2016 at 98.73 I hope to sell the long bonds orginally issued by Albertson's when and if I can capture a 10% profit on the bonds  (i.e. excluding interest payments).   SVU  My three Albertson bonds do have different payment dates.  1 Albertsons 7.75% Senior Bond Maturing 6/15/2026 at 80 1 Albertsons 7.45% Senior Bond (now part of SVU) Maturing 8/1/2029  at 77

My confirmation states that the current yield for this bond is 10.051% and the yield to maturity (YTM) is 10.324%.

This is a link to the Finra information on this bond: FINRA According to FINRA, this bond is rated B2 by Moody's and B by S & P. 


  1. great investigative work on NXY

  2. Re: XIN

    You might be interested in this investigative report by an Australian news service on China's "ghost cities". They interview an analyst who estimates there are 64 million vacant apartments in China, most of them in "secondary cities".

    I realize it is only an LT, but the point is to pick winning LTs, right?