Thursday, May 12, 2011

Bought 50 FMER at 16.96/Bought 30 BRKL at LT at 9.06/Bought 50 TRK at 14.65/Sold 100 CWHN at 21.39/Sold 50 ING Hybrid IDG at 24.63/Sold 100 of the Bond CEF GBAB at 18.84

The U.S. Department of Health released a study that uninsured Americans failed to pay up to 49 billion in hospital bills every year.  Those costs contribute to higher insurance premiums, thereby contributing to more Americans electing to go without insurance.  

Johnson & Johnson (own) was added to the Goldman Sachs' conviction buy list.  TheStreet

Intel (own) raised its quarterly dividend by 16%, the second increase in six months. The new quarterly rate is 21 cents per share. The earlier raise was a 15% increase back in November 2010.    SEC Filed Press Release  I started to re-initiate purchases of Intel shortly after Lehman's failure (see snapshot at Item # 4 Snapshot of Intel Purchases with Cash Flow). Those purchases were then made under the Large Cap Valuation Strategy.  They would qualify under the Common Stock Dividend Growth Strategy with the recent growth in the dividend. As shown in the snapshot, my average total cost per share is $16.59 for the long term shares.  The increased dividend gives me an annualized yield of 5% at a total cost of $16.59.

Several TCs that I own went ex interest yesterday for their semi-annual payments, including JZV, DHM and JZJ.  After a few recent sales of JZV, I am content to just hold the 100 shares held in a taxable account with 50 of those shares bought below $10.  I am trying to cut down on my charitable contributions to our destitute Uncle Sam in 2011, so I am reluctant to sell positions with large capital gains, though I may change my mind in 2012 on that point.

I lost a chunk of my JZJ shares, and all of my JZE shares, to redemptions by the call warrant owners. (JZE was bought at $12.5 and redeemed at $25 plus accrued interest):

JZE Full Call and JZJ Partial Call 2010=$1809.44 Realized Gain Plus Interest on $2740.56 Investment

Both of those TCs contained the same senior AT & T bond.   I am surprised that the warrant owner has not yet fully redeemed JZJ shares.  For now, I am content to hold what I own, with an average cost per share of  , but would not purchase any anywhere near current price levels.

JZJ Remaining Shares After 2010 Partial Call by Warrant Owner

1. Bought 50  FirstMerit Corporation (FMER) at 16.86 Last Friday (Regional Bank Stocks' Basket Strateagy)(see Disclaimer): FMER appears to me to be a well run regional bank operating in northeast Ohio and in the metropolitan Chicago area.  The original focus was in Ohio, but the Near Depression gave this well capitalized bank the opportunity to extend its reach into the Chicago area via two FDIC assisted acquisitions and the Chicago branches of First Bank. This extension of FMER's geographic service territory is discussed at page 2 of FMER's 2010 Annual Report: Form 10-K

FirstMerit did participate in TARP. FORM 8-K The bank bought back the government's preferred stock in April 2009. (page 7 2009 Annual Report Form10-k). Many banks took the government's low cost money, just a 5% dividend rate for the first five years,  until the government started to demand a say on pay. Then, the bank officers decided quickly that they no longer wanted the low cost money.

The 2010 year-end capital ratios can be found at page 47 of that report.

For the 1st quarter of 2011, the bank reported net income of 27.6 million or 25 cents per share.  SEC Filed Press Release As of 3/31, the tangible common equity ratio was 7.5%; the efficiency ratio was just okay at 64.46% (below 60% would be preferable); the allowance for loan losses to NPLs was 138.67%; and the net interest margin was at 4%.  A more detailed  Form 10-Q has been filed for the quarter. The capital ratios can be found at page 71 of that report. 

The dividend yield is okay. However, FMER did reduce the annual dividend from a $1.14 in 2008 to 76 in 2009 and then cut the dividend again in 2010 to 64 cents per share annually.  While that is understandable, and certainly better than FMER's main competitors in Ohio (e.g. KEY), it is still viewed unfavorably here at HQ which is one reason this bank is a late edition to the basket. I decided to give more weight to its entry into the Chicago metropolitan area than to the dividend cuts which is the main reason for initiating a small position at this time. 

2. Sold 100 Bond CEF GBAB at 18.84 Last Friday (see Disclaimer):  I am continuing to pare my longer term bond fund holdings, and I am done for now with the sells of the CEF GBAB and the perpetual ING hybrid IDG last Friday.   GBAB was a recent purchase at $18.2

3. Sold 50 IDG at 24.63 Last Friday (see Disclaimer):  I hopefully will not buy another ING hybrid until I can receive a current yield greater than 8%.   I had some success trading the ING hybrids during the Near Depression period, when they could have been purchased with yields over 20% on a routine basis, and sometimes closer to a 60% annualized yield. ING Hybrids: Links in one Post

For example, I mentioned buying ISF at $4.6 (February 2009). At that price the yield was over 34%.  But that was not the low price. A few days after my purchase the price hit $2.6 and all of the ING hybrids traded on U.S. exchanges have $25 par values. With a 6.375% coupon on a $25 par value, the current annualized yield for a purchaser at a total cost of $2.6 would be over 61%.  In retrospect, I doubt that the college professors who have sold many of their snake oil "efficient market" theories could justify that kind of price based on a rational assessment of all available information. 

I received one quarterly dividend for my latest foray into IDG and a small profit.  I just do not want to continue playing the European hybrids when they are trading near, or even over their par values. 

4. Sold 100 CWHN at 21.39 Last Friday (see Disclaimer):  I have bought and sold this exchange traded senior bond, issued by Commonwealth REIT  (CWH), on several occasions.  While I am currently comfortable with the credit risk, and the intermediate maturity, I am not enthusiastic about the yield or the appreciation potential above my sales price last Friday.  This bond has a 7.5% coupon on a $20 par value and matures on 11/15/2019  It is callable by the company after 11/15/2014.  CWH was able recently to sell another senior bond, traded in the bond market, with a 5.875% coupon and a 2020 maturity. That bond is now selling at a premium to its par value. FINRA 

Interest payments on CWHN are made quarterly.

I bought the shares sold last Friday in two 50 share lots: Added 50 of CWHN at 20.65  Bought: 50 CWHN @ 21

Commonwealth REIT was formerly known as HRPT Properties.  The symbol for this bond was then HRPN, and I bought and sold it back then: Bought 100 HRPN at 19.32 (January 2010 Post) Sold 100 CWHN at 21.22 in Roth  (September 2010) Added 100 HRPN AT 19.15 (January 2010 Post)  Sold 100 CWHN at $20.57 (August 2010).

I will buy this security back at a price slightly above its $20 par value or below.  Instead, I will use the profits and trading CWHN, plus its interest payments,  to buy more of CWH's common shares.  I currently own 100 shares of CWH. The dividend yield on the stock is higher than on the bond.  The annual common stock dividend is currently $2 per share.   CWH 

CWH reported FFO per diluted share of 86 cents for the first quarter.  Rental income for the quarter was reported at  214.362 million. Total assets was shown on the balance sheet at 6.689 billion dollars.   As of 3/31/11, 87.5% of CWH's total square footage was leased, down from 88.6% at the end of March 2010. CWH also filed  the SEC Form 10-Q for the first quarter which goes into more detail than the press release announcing earnings.  As of 3/31. the REIT owned 271 suburban office buildings, 39 Central Business District office buildings, and 180 industrial and other properties. (page 12)

5. Bought 50 Speedway Motorsports (TRK) at 14.65 Last Friday (See Disclaimer):  I recently sold 100 shares of Speedway Motorsports  at $16.08. My most extensive discussion of this company was made when I purchased 50 shares of TRK and International Speedway on the same day. Bought:  50 TRK @ 15.77, 50 ISCA @ 23 I later averaged down on TRK by buying 50 shares  @ 14.55.

The dividend yield is okay at my purchase price last Friday. The current annual rate is 40 cents per share, or around 2.73% at a total cost of $14.65.

I now have a lower cost basis for 50 shares than I did for the previous 100 shares, which is an important consideration under LB's myriad trading rule.  I also made a small profit on the first quick trade (+$68.11), plus one dividend payment.  

I view Speedway as a contrarian value play. My reasons for buying a few shares at $15.77 last year remain the same. The recession, high unemployment and gas prices have had a profound impact on the typical customer for motorsports. It is not surprising that both the dominant owners of race car tracks in the U.S., TRK and ISCA, have suffered under those conditions.

When those conditions improve, hopefully sooner rather than later, I would anticipate better earnings. The current depressed TRK price has the bad news from the past two years baked into the share price.  But the share price also seems to predict with close to virtual certainty a continuation of those adverse conditions for many years to come.  If that is a correct assessment, it would not take much of a surprise to send the shares back over $20 per share.  A five year high was hit at $40.36 per share on 5//31/2007. TRK Stock Charts.

The shares have fallen over a buck since the release of its first quarter earnings report before the market opened on 5/4 which seemed like an overreaction to me. Form 10-Q  The company reported non-GAAP earnings of 8 cents for the first quarter and reaffirmed full year guidance of $.9 to $1.2 per diluted share from continuing operations. SEC Filed Press Release  The consensus estimate, made by 4 analysts, is for a $1.05 in 2011 and $1.17 in 2012.

For this stock to hit $20 within the next 18 months, TRK will need to do better than $1.17 for 2012, more like $1.30 in 2012, with economic conditions improving during the course of 2012 so that investors would be raising their estimates for 2013. If the $20 target is hit in one year with the 4 dividends, then the total return would be about 39% at a total cost of $14.65.  

6. Bought 30 Brookline Bancorp (BRKL) at 9.06 Last Friday (LOTTERY TICKET strategy)(See Disclaimer):  I may upgrade this position to the Regional Bank Strategy basket, provided Brookline successfully integrates its recently announced acquisition of Bancorp Rhode Island (BARI). A successful integration would make BRKL an potential acquisition target for a larger bank desiring to expand into MASS and RI.  Both BRKL and BARI were on my monitor list for possible purchase under the Regional Bank Basket strategy.  Unfortunately, I did not own Bancorp Rhode Island which jumped from a close of $30.71 on 4/19, with a share volume of 600 shares, to $44 the next day on 469,700 shares.   BARI Historical Prices  

I was not surprised by the decline in BRKL shares after the merger announcement, as the shares fell from $9.98 to $8.93 or about $10.5. The reason is that this appears to be a full priced offer.  BARI shareholders will receive either $48.25 in cash or 4.866 shares, or a combination of the two.  SEC Filed Merger Agreement   BRKL maintains that the deal with be 25% accretive by 2012 (see statement, but the market has its doubts given the current share price action.   I have no basis to dispute that number or to affirm it.  

The merger does makes some sense to me since the banks are similar and their service territories are near each other geographically.   Brookline Bank has 26 branches in Massuchusetts and BARI has 17 in Rhode Island. 

Brookline reported net income of 7.267 million for the 1st quarter or 12 cents per share, up from 11 cents in the first quarter of 2010.  As of 3/31, the net interest margin was 3.74%; non-accrual loans as a percentage of total loans were at .38% which is excellent; NPAs to total assets were at .35%; and tangible book value per share was at $7.54.  The capital ratios shown in the 2010 Annual Report at page F-49 are good too.  The bank did not participate in TARP, see page 10. 

Bancorp Rhode Island reported net income for the first quarter of 2.307 million dollars or 49 cents per diluted shares. 10-Q As of 3/31, the tangible common equity ratio was 7.4%; the tangible book value per share was  $25.15;  NPAs as a percentage of total assets were at 1.09%; the efficiency ratio was high at 71.11%; the net interest margin was at 3.58%; and the capital ratios shown at page 44 were okay.  No government preferred stock is shown on the balance sheet as of 3/31/2011.  The bank did participate in TARP:  The bank repurchased the government's preferred stock in August 2009. (page 3 2009 Annual Report Form 10-K)

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