Thursday, October 27, 2011

BYD FMER TRMK UBSI CBU/Sold 1 Goodyear Tire Senior Bond at 106.02/Sold 50 CUZPRA at $25/Sold 100 OPXT at 1.05

I suspect that the rally yesterday was mostly due to comments by the Chinese Premier that suggested a more dovish monetary policy may be underway in China after several months of tightening. MarketWatch

Some commentators suggested that the rise was due to a belief that Europe was finally gaining some traction in dealing with its sovereign debt problems.  I did not see much concrete evidence during market hours yesterday to support that belief, but some progressed was apparently made last night. Sarkozy said last night that the banks agreed to take a 50% haircut on their Greek government debt. He further added that the bailout out will be leverage up to $1.4 trillion.

Boyd Gaming (BYD) reported better than expected third quarter results. While this casino company continues to be negatively impacted by a decline in gaming, BYD did report GAAP earnings of $3.1 million or 4 cents for the third quarter on a one percent decline in revenue. The revenue from the Borgata Hotel in Atlantic City, Boyd's 50% joint venture with MGM, was hurt by the closure due to hurricane Irene.  SEC Filed Press Release Net revenues were $590.2 million in the 2011 third quarter. I own 2 Boyd Gaming bonds and 30 shares of the common as a Lottery Ticket.

According to the Federal Housing Finance Agency, prices declined 4% in August nationwide, year-over-year. The FHFA housing index fell .01% in August, compared to July, which represented the first monthly decline since March 2011. The gain of .8% in July was revised down to show no gain.

The Treasury sold $35 billion in five year notes yesterday at a 1.055% yield. 

1. FirstMerit (FMER)(own: Regional Bank Stocks Basket Strategy): FMER reported net income of $31.7 million or 29 cents per share for the third quarter. SEC Filed Press Release The consensus estimate was for 28 cents. As of 9/30/11, the tangible equity ratio was 7.75%; the net interest margin was 3.74 (down from 3.96% as of 9/30/10); the efficiency ratio was 64.87%; the allowance for loan losses (non-covered) as a percentage of NPLs was 160.09%; and NPAs as a percentage of total assets stood at 1.21%.

FirstMerit closed at $13.85 yesterday, up 71 cents or 5.4%. I am in the hole on FMER. I am reinvesting the dividends:  Bought 50 FMER at 16.96 Added 50 FMER at 16.18 Bought 30 FMER at 11.35
2. Trustmark (TRMK): Trustmark reported net income of $27 million or 42 cents per share for the third quarter.  The consensus estimate was for 41 cents. As of 9/30/11, the net interest margin was 4.17%; the efficiency ratio was 63.99%; the total risk based capital ratio was at 16.78%; tangible common equity to tangible assets was at 9.74%; the allowance for loan losses to NPLs (excluding impaired) was at 248.8%; and NPLs to total loans stood at 1.66% (non-covered). 

Trustmark closed at $22.25, up 47 cents yesterday.

Bought 50 TRMK at 19.57

3. United Bankshares (UBSI)(own: Regional Bank Stocks Basket Strategy): UBSI reported net income of $20 million or 40 cents per share for the third quarter. SEC Filed Press Release The consensus estimate was for 41 cents. As of 9/30/11, the coverage ratio was 99.7%; NPLs to total loans stood at 1.28%; the total risk-based capital ratio was estimated to be 13.6%; and the net interest margin was 3.87%.

United Bankshares closed at $23.49 yesterday, up 66 cents. 

Bought 50 of UBSI at $16.65 November 2009 I have probably kept this one due to my dividend yield being over 7% at my constant cost basis. I will likely sell at or near $30 however.

4. Community Bank System (CBU)(own: Regional Bank Stocks Basket Strategy): Community Bank System reported third quarter net income of $20 million or 54 cents per share, up from $17.3 million in the year ago quarter. The E.P.S. number included 1 cent in acquisition related charges. The consensus estimate was for 54 cents. As of 9/30/11, the tangible equity to tangible assets ratio was 6.79%; NPAs to total assets stood at only .33%; the loan loss allowance to NPLs was at 226%; the net interest margin was at 4.04%; and the efficiency ratio was 57%.

Community Bank System fell 5 cents yesterday to close at $25.3.

Bought 50 CBU @ 23.18 Added 50 CBU @ 25.19- Averaged Up

5. Sold 1 Goodyear Tire 8.25% Senior Bond Maturing 8/15/2020 at 106.02 Last Tuesday (Junk Bond Ladder Strategy)(see disclaimer): This strategy will be a success in my opinion by simply breaking even on the bonds. Since I expect defaults, I will need to offset those losses by selling some bonds at a profit and holding others bought at a discount to maturity. I am selling bonds bought near par value whenever there is a pop above par value. I recently bought this GT bond at 98.5. Bought 1 Goodyear Tire 8.25% Senior Maturing on 8/15/2020 at 98.5 A similar approach was used with the Alon Refining bonds bought at a slight discount to par value and later sold at 107.  SOLD 2 Alon Refining Krotz Springs Bonds @ 107 I fully expect to have several large percentage losses, so I can not offset those losses with trading profits realized from small 1 or 2 bonds bought close to par value. Instead, the only way to offset those expected losses will be to hold a number of the bonds, bought at greater than 10% discounts, until maturity.

If and when this bond falls back below par value, I will consider buying it back.

Item # 5 Realized Gains Junk Bond Ladder Strategy

6. SOLD 50 CUZPRA at $25 Last Tuesday (see Disclaimer): Given the limited upside potential possible when purchasing REIT cumulative preferred shares near par value, I will generally not hold my shares for very long. I noted that trading habit when I purchased 50 shares of CUZPRA back in March. BOUGHT 50 CUZPRA at 24.6 March 2011 I would collect some dividends and be content to sell the shares for more than a $1 profit which is what I did last Tuesday. Back in December 2008, I bought shares in CUZPRA at $11.5, and that is a sufficient statement of fact to illustrate the potential downside risk. Buy of CUZPRA at $11.5 December 2008

Cousins Properties Inc. 7.750% Cum. Pfd. Series A, CUZ.PA is set to go ex dividend on 10/28/11, so I elected to forgo that profit in order to sell the shares for a profit now.

I may use the proceeds from this transaction to buy another REIT preferred with a slightly higher yield than CUZPRA but issued by a better credit risk in my opinion.  I am going to have to have a larger discount to buy back CUZPRA.

REIT CUMULATIVE PREFERRED LINKS IN ONE POST/Advantages & disadvantages  I now have snapshots of some of my REIT preferred trades in the foregoing Gateway Post.

7. SOLD 100 OPXT at 1.05 Last Tuesday (LOTTERY TICKET strategy)(see disclaimer): Opnext reported that its primary contract manufacturer, located in Thailand, has had its manufacturing facility flooded and believes that it will not be able to resume operations this year. That was just one too many problems for Opnext in my view. Consequently, I decided to exist my recently purchased shares at a small loss.  Bought 100 OPXT as LT at $1.18 One reason for buying a LT is that I at least see the possibility of an upside move over the near term, meaning within the next few months. This latest disaster makes that highly unlikely for OPXT.

The flooding in Thailand is pretty bad. Bloomberg

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