Thursday, January 12, 2012

Bought 50 BAX at $49.79/Bought 50 ENY at $17.18/Sold 50 AFE at $25.5/Added to MACSX/Sold 1 Vulcan Materials 7% Senior Bond Maturing 2018 at 103

Last Monday, based on improving economic data, I made a slight shift out of bonds into stocks. The primary stock purchase, however, was Baxter International, which I do not view as particularly sensitive to an improving economy.

The Treasury sold 10 year notes yesterday at the lowest yield on record. This auction was a reopening of a prior 10 year auction, with 9 years and 10 months remaining on the term. The yield was 1.9%.

I am starting to prepare a list of European stocks that have declined in value in their local markets and are even cheaper for me to buy using my USDs due to the recent and ongoing decline of the Euro. I would just call that a double whammy for existing U.S. owners of those securities. Some of the securities being considered are discussed in this Seeking Alpha article. An earlier example of a purchase made after a double whammy was a buy of 100 AXAHY at $14.69 back in June 2010. That post involves a fairly extensive discussion of my analysis that led to that purchase which included the currency exchange factor.

The currency issue is certainly a wild card. By looking at a two year chart of the EUR/USD, I can see that I waited for the conversion rate to fall to around 1.2 before buying AXA back in June 2010. And my subsequent profit, realized a few days after the purchase, was due in large part to just a rally in the Euro against the USD. Sold 100 AXAHY at $16.66 June 2010 (see also: International Trading and Currency Risks) The shares are now trading below my June 2010 purchase price: AXAHY AXA I do not currently have a position.  

1. Bought 50 Baxter International (BAX) at $49.79 Last Monday (Large Cap Valuation Strategy)(see Disclaimer): This selection does qualify under the large cap valuation strategy. The current consensus estimate is for a 2011 E.P.S. of $4.31 and $4.64 this year. BAX Analyst Estimates The forward 5 year estimate P.E.G. is 1.18. The company had $4.15 per share in cash as of 9/30/11. Return on equity is around 31.68%. 

In 2011, Baxter raised its quarterly dividend to $.335 per share from $.31. Baxter U.S. - Information for Investors: Dividends & Splits The stock does not qualify, however, under the Common Stock Dividend Growth Strategy due to the current dividend yield being lower than 3% and other reasons such as a lack of dividend growth between 2003 through 2008. Common Stock Dividend Growth Strategy

Morningstar currently has a 4 star rating on BAX, and a consider to buy target of $49.

Baxter's profile page at Reuters
Baxter's key developments page at Reuters

For the quarter ending in September 2011, Baxter reported net income of $624 million or $1.09 per share, adjusted for extraordinary items. SEC Filed Press Release Revenues were reported at $3.479 billion for the quarter. Net sales for the first nine months of 2011 were $10.299 billion, up from $9.345 billion in the comparable 2010 period.

BAX is a financially sound company. Its bonds are rated A+ by S & P and A3 by Moody's. FINRA

Baxter International rose 68 cents in trading yesterday to close at $50.86.

2. Sold 1 Vulcan Materials 7% Senior Bond Maturing 2018 at 103 Last Monday (Junk Bond Ladder Strategy)(see Disclaimer): This bond popped after Martin Marietta made a hostile offer for Vulcan.  I am taking profits on lower yielding junk bonds when there is a pop over par value. I bought this bond at 95.5. Bought  1 Vulcan Materials 7% Senior Bond Maturing 6/15/2018 at 95.5 (August 2011). I still own a Vulcan bond maturing in 2021:  Bought 1 Vulcan Materials 7.5% Senior Bond Maturing 6/15/2021 at 99.874 in Regular IRA I would like to sell that bond at its current price, but have not seen a bid yet willing to accept a 1 bond sale. FINRA 

3. Added to MACSX (see Disclaimer): MACSX Matthews Asian Growth & Income is rated five stars by Morningstar. The expense ratio of around 1.13% is low for this kind of fund. In 2011, the fund paid a total dividend distribution of $1.0832 per share. Of that amount, the long term capital gain distribution was $.5915.Distributions - Matthews Asian Growth and Income Fund

I will generally avoid buying any stocks from Asian companies and will achieve exposure to this stock sector solely through stock funds.  This fund recently reopened to new investors.Matthews Asia to Re-Open Two Funds I am reinvesting the dividends to buy additional shares.

Sponsor's webpage: Overview - Matthews Asian Growth and Income Fund
Link to top 25 holdings:   Top 25

This fund is available on a NTF basis at most major discount brokerages. Fund Purchase Information

This is a link to the shareholder report for the third quarter: I also own Matthews Pacific Tiger Fund for several years, selling most of my position prior to the Near Depression. I initiated a position in MACSX back in 2009. Bought Matthews Asian Growth and Income (MACSX)

Matthews Asian Growth & Income Fund closed at $15.24 yesterday. 

4. Sold 50 AFE at $25.5 Last Monday (see Disclaimer): When buying long term bonds at or near par value, I am antsy about the interest rate risk. AFE is an exchange traded bond that matures in 2034. It has a 7 1/8% coupon on a $25 par value. Interest payments are made quarterly. Prospectus

This last purchase was made at $24.88 last March.  I have bought and sold this senior bond several times: Bought 50 AFE at $22.87 June 2010 Bought 50 AFE at $23.17 June 2010 Sold: 50 AFE at 24.59 August 2010 Sold 50 AFE at 24.78 September 2008

I still own 200 shares of the exchange traded bond GFW, Final Prospectus Supplement, issued by a related company. Exchange Traded Bonds

American Financial Group Inc. 7.125% Sr. Deb. 2034 rose 10 cents in trading yesterday to close at $25.54.  

5. Bought 50 of the stock ETF ENY at $17.18 Last Monday (see Disclaimer): This ETF has a  relatively high expense ratio of .65%. ENY - Guggenheim Canadian Energy Income ETF. As of 9/30/11, the fund owned 34 Canadian energy companies.  This is a link to the current holdings: ENY Holdings Dividends are paid quarterly. ENY Distributions

I will buy some of the individual names owned by this fund, and currently have positions in Husky Energy, Suncor, and Enerplus.  Of those individual positions, Husky is currently the largest at 200 shares after a recent 100 share purchase. Bought 100 HUSKF at $23.81

By buying the ETF ENY, I increase my exposure to this sector a tad without increasing the specific risk associated with individual stocks. The investment theme here involves a belief in the long term potential of Canadian energy companies, particularly those with significant oil sand projects. (see discussion at Barrons, 2/12/11 edition; and my recent post at Item #2 Bought 50 SU at $28.67)

Guggenheim Canadian Energy Income ETF declined 28 cents yesterday to close at $17.06.

The WSJ has a story in today's paper about the glut in natural gas prices. Natural gas prices fell 5.7% in trading yesterday. (Henry Hub spot price declined 17 cents to close at 2.81  Bloomberg)

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