Tuesday, August 2, 2011

ISM Manufacturing/Added 50 SWZ at 13.75/EARNINGS: BC FHN ASH SLM BYD MWV HCA SUSQ NPBC EXAR RTIX PLXT/FNFG Dilution/Nursing Home Smackdown By Medicare

The House passed the "Budget Control Act of 2011" by a vote of 269 to 161.  Gabrielle Giffords made her first appearance since being shot in the head and voted for the measure.  The Washington Post 95  Democrats and 66 Republicans voted no. House Vote 690 

This is a link to the text of the bill: Text of the Debt Ceiling Agreement I feel sorry for the staffers who had to write this 74 page bill virtually overnight.

The only GOP candidate running for President who supported this bill is Jon Huntsman, NYT, who appears to be the only candidate unwilling to bend over for the Know Nothing Zealots.

Interest on the national debt is running this fiscal year at about 1.6% of national output. The interest on the debt was frequently over 3% of GDP during the Reagan administration. TIME

The  ISM July report on manufacturing was downbeat. The reading of 50.9% was much lower than anticipated, but consistent with my estimate of business conditions now. This reading represented a 4.4% decrease from June. Importantly, the new orders component slipped to 49.2%, indicating contraction for the first time since June 2009.

There are currently 15 countries with AAA credit ratings from both Moody's and S & P. They include Canada, Australia,  Germany, France, Sweden, Netherlands, and Switzerland.

It is interesting to view polls where Americans express their disgust with Congress. Washington Post-Pew Research Center Poll The voters need to blame themselves for what just happened in Washington. And, the voters have no one but themselves to blame for the current fiscal crisis. If they want to elect a few more GOP senators and Michelle as the nation's next President, the noisy kind of democracy can be replaced with a streamlined reactionary agenda. The GOP has already revealed what it wants to do in their near unanimous approval of the Ryan budget plan. Possibly the implementation of those plans will be a form of divine justice for tea party crowd.

1. Earnings Reports For Companies Where My Position Consists Solely in Owning Bonds except for Boyd Gaming:  

Brunswick (BC) reported earnings of 73 cents, beating expectations by 19 cents.  SEC Filed News Release I only own a senior BC bond:  Bought 1 Brunswick 7.375% Senior Bond Maturing 9/1/2023 at 94.2

Ashland (ASH) reported earnings of 82 cents per share, excluding items, beating expectations by six cents. SEC Filed News Release I own a bond originally issued by Hercules which was later acquired by Ashland. 1 Hercules 6.5% Junior Bond Maturing on 6/30/29 at 86

SLM Corporation (SLM) reported "core" earnings of 48 cents compared to the consensus analyst estimate of 42 cents. SEC Filed News Release I own 100 shares of a senior exchange traded SLM bond, OSM, with a total average cost of $15.73 (see snapshot at Item # 3 Stocks & Politic). OSM matures in 2017 at $25 and pays monthly interest at a spread over CPI.  An explanation of the calculation can be found at Item # 1 Stocks & Politics: OSM  (December 2010). 

Boyd Gaming (BYD) reported net revenues of $574.4 million and a net loss of 3 cents per share. Total adjusted EBITDA was $118.4 million for the quarter.   SEC Filed Press Release I own the common as a LT and one senior subordinated bond, which is called a junior bond here at HQ:  Bought 1 Boyd Gaming Senior Sub 7.125% Maturing 2/1/2016 at 89.55 with concession 

MeadWesvaco (MWV) reported net income of $89 million or 51 cents per share ($.54 excluding items), meeting expectations.  Revenues increased 9 percent to $1.56 billion. The company expects modest improvement in earnings for the third quarter. Bought 1 MeadWestvaco 6.8% Senior Bond Maturing 11/15/2032 at 92.926

HCA disappointed their common stock investors by reporting earning of 43 cents per share, which included a 8 cent per share charge for debt retirement, on a 4% increase in revenue. The common shares subsequently dipped below their recent IPO price. The company blamed the disappointing results on declines in expensive surgeries.  Bought 1 Senior 7.5% HCA Bond Maturing 12/15/2023   Bought 1 Senior 7.69% HCA Bond Maturing 6/15/2025 

Companies providing medical care and products fell yesterday in response to the budget deal which would reduce medicare payments to medical providers automatically in the event Congress is unable to approve the second 1.5 trillion dollar deficit reduction. The market acted as if that eventuality was already a done deal, taking HCA down $1.74 to close at $24.94. The major 11.1% cutback in F/Y 2012 to skilled nursing home providers added to that angst. See item # 4 below, Reuters and WSJ.

2. Earnings from Companies in the LOTTERY TICKET strategy: I barely pay any attention to my common stock positions in the LT category, except where I also own the firm's bonds which is the case for National Penn.  I will only make brief notes of the earnings:

Susquehanna Bancshares (SUSQ) reported earnings of 9 cents per share, meeting expectations.

National Penn Bancshares (NPBC) reported earnings of 15 cents a share up from 10 cents in the year earlier period.  The quarterly cash dividend was increased to 3 cents per share. Since I also own 150 share of NPBCO in addition to a LT position in the common stock,  I will discuss National Penn's earnings in more detail.  Bought 100 NPBCO at 24.91 Bought 50 of the TP NPBCO at $24.93 As of 6/30/11, the tangible equity to tangible asset ratio was 10.25%; the net charge offs to average loans decreased to .62% (hit 1.7% in second quarter of 2010); NPLs as a percentage of total loans were at 1.41%; the net interest margin was at 3.53%; the efficiency ratio was at 58.25%; and the tangible equity to tangible assets ratio was 10.25%. Tangible Common Equity excludes preferred stock and intangible assets.   

EXAR reported a GAAP loss of 3 cents for its first fiscal quarter (+ 2 cents Non-GAAP) on net sales of 37 million, generating 2 million in cash from operations. The company ended the quarter with $202.4 million of cash, cash equivalents and short term marketable securities

PLX Technology (PLXT) reported a 14 cent GAAP loss per share (-6 cents Non-GAAP) on revenues of $30.745 million. The consensus estimate was for a loss of 7 cents, so that is a one cent beat.

RTI Biologics (RTIX) experienced a good percentage increase in its share price after releasing earnings before the market opened last Thursday, moving from $2.98 to $3.24 in trading that day on heavier than normal volume.  RTIX Historical Prices  The company reported net income of 4 cents per share on $43.5 million in revenues.

First Horizon reported net income of 43 million or 16 cents per diluted share for the second quarter.

3. First Niagara (own: Regional Bank Stocks' basket strategy): First Niagara agreed to acquire 195 branches in New York and Connecticut from HSBC for about 1 billion dollars.  FNFG anticipates issuing $750 to $800 in stock before completing this acquisition. Once completed, the bank estimates that the additional branches will add 10% to 12% in operating earnings next year and 11% to 12% in 2013. First Niagara Accelerates Growth Strategy With Acquisition of HSBC Branches Across Upstate New York and Connecticut, Strengthening the Bank's Northeast Regional Franchise (Nasdaq:FNFG) FNFG expects to earn back the dilution caused by the share offering in 4 to 6 years.

First Niagara Financial fell 33 cents to close at $11.92 yesterday. Many investors are apparently dissatisfied with the dilution.

4. Medicare Slashes Reimbursement Rates for Skilled Nursing Care: For those dependent on the generosity of our destitute Uncle Sam, the future is not bright. Medicare announced that it would slash prospective payments to Skilled Nursing Facilities by 11.1% in Fiscal Year 2012 compared to payments in F/Y 2011.  www.ofr.gov/.pdf The change is summarized in this article.

I do not own any nursing home stocks or REITs that own nursing homes. That entire sector was smashed yesterday including REITs that cater to this industry. (see articles at MarketWatch and Kaiser Health News) The nursing home association claimed that the cuts will destabilize the industry. WSJ

5. Added 50 of the Stock CEF Swiss Helvetia Fund (SWZ) at 13.75 on Monday (see Disclaimer):  This CEF just went ex dividend for its semi-annual distribution that consisted mostly of a long term capital gain dividend of $.727 per share. Swiss Helvetia Fund Historical Distributions I have been reinvesting the dividend to buy additional shares.

My last open market purchase was a 50 share buy in December 2009. Added to CEF SWZ at $12.15

I suspect that the fund was selling on Monday at slightly more than a 10% discount to its net asset value.

As of last Friday, the net asset value per share was $15.46 and the closing price that day was  $13.85.

Information about the fund can be found at the sponsor's web site: SWZ.com - Swiss Helvetia Fund

As the name suggests, the fund invests in companies based in Switzerland.  For a U.S. investor, the net asset value  will be impacted by the value of the USD against the Swiss Franc. The USD has been losing that battle since June 2010. USD/CHF Currency Conversion The Swiss Franc is viewed as a safe haven type of currency. The Swiss market hit an air pocket today due to the strength of its currency.  MarketWatch

The fund is heavily weighted in the two large Swiss pharmaceutical companies Roche and Novartis along with Nestle. Those three companies have a combined 36.63% weighting as of 5/31/2011 and would be viewed by most investors as defensive.

CEFA - Closed-End Fund Association Page on SWZ.
Morningstar Page on SWZ
Last SEC Filed Shareholder Report Swiss Helvetia Fund, Inc. for period ending March 2011.

Swiss Helvetia Fund closed at $13.87 yesterday, up 3 cents for the day.

I will mention the other trades from Monday, including the purchase of a new exchange traded senior bond, in the next post.

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