Friday, January 13, 2012

Sold 50 MSFT at $27.91/Bought 30 DOLE at $8.34-Lottery Ticket/EK Sears/Comparing Online Bond Brokers/Sold 50+ AF at $9.39/SVU/

Another major adverse development for Sears is the decision by CIT to quit making factoring loans to Sear's suppliers. Bloomberg Maybe that will be sufficient to wake Eddie Lambert up.

This is a link to an interesting article at Reuters discussing the legal implication of an Eastman Kodak bankruptcy on its UK pension obligations. EK has committed $830 million from 2011 through 2022 to that UK plan. A U.S. pension obligation is an unsecured obligation in a U.S. bankruptcy but apparently the U.K. obligation would be more problematic for EK in a bankruptcy restructuring. Unfortunately, I own 2 EK unsecured senior bonds maturing in November 2013, and fully expect to take a loss on them. Eastman Kodak (January 2012 post); Update on Eastman Kodak's Third Quarter Earnings Report;  Eastman Kodak (EK) Bonds-Own 2013 Senior Bond (September 2010 Post)

Bloomberg reported last night that EK was in advanced discussions with Citigroup to provide debtor-in-possession financing.  Unless a "last ditch" effort to sell patents bears fruit soon, bankruptcy appears to be EK's option.

I view the WSJ dividend page every night. I noticed that PFK, a CPI floater issued by Prudential, will go ex interest for its monthly distribution on 1/30. This penny rate will float based on a 2.4% spread over CPI. The penny rate for the next distribution is $.1235 per share. The computation is identical to the method utilized by OSM and ISM, except for the spread differentials. I last discussed the computation for ISM in Item # 4 Bought 50 of the CPI Floater ISM at $20.62 (August 2011). I own all of those securities. Bought 100 PFK at 18.47 June 2009  Bought 90 PFK in IRA $18.94 June 2009  Added 50 PFK at $17.83 August 2009  Added 50 PFK in Roth at 20.88-Averaged UP (Last Purchase January 2010)  Bought 50 ISM at 19.5  Bought 50 OSM at 15.74 May 2010   (see snapshots of PFK buys at Item # 3:  PFK (August 2011 Post); see snapshots  cost basis for remaining OSM shares owned at Item # 1 Lehmann's Article in Forbes re: AEB, GSPRA and OSM)

1. Comparing Brokers for Online Bond Purchases: Every year, financial publications publish ratings of online brokers. I will read those reviews since I am a heavy user of online brokerage services. While those reviews will generally be helpful, they are inadequate. It is obvious that those responsible for preparing those ratings have not delved deeply into the online experience of a heavy user. I will frequently point out in this blog several major problems that have never to my knowledge been mentioned in those reviews. The most serious, from my point of view, is the expanding non-sensical trading restrictions promulgated at Fidelity. 

I was critical of Vanguard's commission of $50 for online bond trades. That issue was recently cured with the adoption of a $2 per bond commission for Vanguard's Voyager customers. This rate is particularly attractive to me since most of my bond orders are for 1 bond. I now prefer trading bonds with Vanguard when purchasing small lots. I also prefer the order detail provided by Vanguard. Item # 1 Bought 1 U S West Communications 7.5% Senior 2023 Bond @100.13 -ROTH IRA 

At TD Ameritrade, junk bonds can not be bought online. I view that as a major negative since investment grade yields are for the most part totally unattractive to me in the 4th year of the Fed's Jihad Against the Saving Class and Responsible Americans. Another drawback is that the minimum purchase is 5 bonds even if there is a seller for a bond willing to accept a lower bid amount. I have consequently avoided placing any bond orders with that company.  

I talked to a Schwab bond representative earlier this week to sell an investment grade bond. Both Schwab and Vanguard do not permit investors to sell corporate bonds online, so I had to call a broker to execute the transaction. I view that as a major negative. The commission is higher when the trade is placed through the broker at Schwab, so that is a major negative in addition to the inconvenience. Schwab will charge the online commission plus $25 per trade to sell a corporate bond. 

A Vanguard bond broker told me that the same commission would apply for a broker assisted sell order, but I have not confirmed that representation with an order yet. The Schwab representative told me that junk bond purchases may be permitted later this quarter, but the timing was still up in the air. 

For exchange traded bonds, Fidelity is by far the worse broker due to its trading restrictions and prohibitions, none of which have been adopted by other brokers that I use and I use several including Ameritrade, Schwab, and Vanguard. I would estimate that Fidelity prohibits its customers from even buying about 1/2 of the available exchange traded bonds, including all synthetic floaters and principal protected notes, plus other bonds such as DFP and AEB. Fidelity Brokerage Extends Denial of Trading Opportunities to Synthetic Floaters and Even an Exchange Traded Junior Bond DFP Fidelity Prohibits New Purchases of Exchange Traded Principal Protected Notes 

I may have not mentioned another type of trading rule imposed by Fidelity. If you are a customer, try to enter an order to buy shares of the equity preferred floater STDPRB. This is the message that you will receive:

After seeing that message, I bought some shares at Vanguard a few weeks ago at below $14 per share.  It is just irritating the LB with no end in sight.

2. Sold 50+ AF at $9.39 Last Tuesday (REGIONAL BANK BASKET STRATEGY (see disclaimer): AF has been bought and sold several times under this strategy. Bought: 100 AF @ 13.08 Bought  50 AF @ 12.08 Sold 50 AF at $14.09 Sold 101 AF at 14.89

My last purchase was at $8.9. Bought 50 AF at $8.9 September 2011. Soon after buying those shares, the bank released an ugly earnings report. Item # 4 AF

Consequently I elected to exit the position with a small gain and one quarterly dividend payment. The 2012 consensus E.P.S. forecast is 62 cents, down from 74 cents estimated for 2011. AF Analyst Estimates 

3. SuperValu (own 2 senior bonds only: 2030 Albertsons and 2014 SuperValu): I have sold three different long term Albertsons bonds, and still own a 2030 maturity which was bought  when the current yield exceeded 10%. Bought 1 Senior 8.7% Albertsons' Bond Maturing 2030 at 85.75 Given the discount to par value, the YTM would of course be higher, but I am unlikely to hold any long term bond until maturity given the risks.  

Supervalu's shares declined 12.51% last Wednesday after the company announced earnings for the quarter ending 12/3/2011. Same store sales declined 2.9%. The company reported an adjusted net income per share of 24, unchanged from a year ago. The GAAP number was a loss of $3.54 per share. SUPERVALU Reports Third Quarter Fiscal 2012 Results Revenues declined to $6.3 billion from $6.6 billion in the year ago quarter. 

Link to WSJ article on earnings report. 
Link to  Reuters discussion of earnings report 
Link to MarketWatch discussion of earnings report

4. Bought 30 Dole Food Company (DOLE) at $8.34-LT (Lottery Ticket Basket Strategy)(see Disclaimer): Dole's stock was trashed by investors after the company reported disappointing third quarter results. SEC Filed Press Release On an adjusted basis, the company reported a loss of 17 cents per share on a 4.9% increase in revenues to $2.09 billion. The consensus estimate was for a 10 cent loss on $2.03 billion in revenues. The report was released after the market closed on 11/17/11, and the closing share price that day was $10.24. DOLE Historical Prices 

The current consensus estimate is for an E.P.S. of $1.45 this year: DOLE Analyst Estimates 

Link to the Dole Food Company profile page at Reuters
Link to  Key Developments page at Reuters.

A number of lottery ticket purchases are made on statistical data. The Price to Sales Ratio for Dole is .1. The Price to Book ratio is .91. The forward P/E, using the current consensus earnings forecast, is 5.72. The five year P.E.G. is estimated at .57. All of that data can be found at the Key Statistics page for Dole at Yahoo Finance. 

Another common characteristic of LT purchases is a smashed stock price. Dole's stock qualities on that basis: DOLE Interactive Chart The two year chart looks really ugly, as the stock is trading now well below both its 200 and 50 day SMA. Back in July 2011, the stock was trading over $14 per share.  

For this kind of company, subject to a wide variety of factors that will impact earnings on a quarterly basis, many investors and analysts will tend to overreact to temporary factors adversely impacting earnings. The last earnings report caused BofA/Merrill Lynch, for example, to downgrade the stock to underperform from neutral and to lower their price target to $9 from $15. 

Later, in early December, Wells Fargo upgraded the stock based on its assessment of the risk/reward profile, estimating  that the stock had 35% upside potential to $11 to $12 and limited downside risk after its price drop.

Dole Food closed at $8.22 yesterday. 

I would add my usual caveat. This strategy is called the Lottery Ticket Basket Strategy for a reason. And, the RB is in charge, not exactly known for its prudence. "Don't sweat the details, go all in", a voice was heard to say. 

5. SOLD 50 MSFT at $27.91 Last Wednesday (Large Cap Valuation Strategy)(see Disclaimer):  This reduces my position to 92+ shares. I reduced my average cost basis a tad by selling these shares which were my highest cost shares. This transaction was one that I was contemplating (1/6/12 Post) before MSFT announced that analyst estimates for PC sales were too high for the 4th quarter. (see discussion at Possibly, I will be able to buy those shares back at below $25 at some point within the next 30 to 60 days. 

The shares sold last Wednesday were the first bought of my remaining shares.   50 MSFT at $25.81 (March 2011). The remaining shares were purchased with reinvested dividends and two small odd lot purchases at lower prices.

MSFT Before Sell of 50 Shares

Microsoft closed at $28 in trading yesterday. 

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