Wednesday, March 28, 2012

Bought 2 RadioShack 6.75% Senior Bonds Maturing 2019 at 80/Sold 50 SHOPRD at $25/CVO/BOUGHT 40 GGAL at $6.72-LT Category

Home prices continued their skid in January 2012 according to Case--Shiller.  standardandpoors Over the past year ending in January 2012, the 20 metropolitan area composite index has declined 3.8%. Atlanta leads the list of annual declines with a 14.8% plunge in home prices, followed by a 9% slide in Los Vegas and -6.6% in Chicago. A few metropolitan areas did show increases from December 2011, including Washington at 1.7%, Minneapolis at 1.1%, and Phoenix at 2%. San Francisco led the decliners from December with a 2.5% drop in home prices.

The market has been ignoring this kind of data for several months now.

The author of this article at Investopedia argues that natural gas producers are a bargain at current prices. He mentions several stocks including Quicksilver (KWK). He may be right,  but I would not anticipate a recovery in natural gas prices anytime soon. It will probably take a spike in natural gas prices to send most of these stocks up in price to any meaningful extent.

There is one long term demand driver for natural gas, but it may take several years to unfold. Historically, gas turbines have been used as peaking units, with coal and nuclear units operated to meet base load requirements. With coal plants being shutdown, and no new nuclear plants likely to come online for years, gas turbines may have to expand beyond their traditional use.

Several article appeared yesterday about proposed regulations impacting new coal plants.   The Washington PostPOLITICOReuters, and WSJ.

Recently enacted EPA regulations are causing a number of utilities to plan shut downs of older coal plants. I have discussed those new requirements primarily in connection with Edison Mission. {Item # 4 Sold 2 Edison Mission 7.75% Senior Bonds Maturing in 2016 at 73.25; Item # 3 Edison Mission Bonds; see also EPA news release on new emissions rule and Reuters news article on how EPA emissions rule will impact U.S. coal capacity}

I am not sure that environmentalists, the Obama administration and the EPA fully appreciate how electricity requirements are met  in the U.S., or how that demand will be met with a significant number of large base load generating stations shut down. Power costs will shoot up at a minimum.

S & P placed Cenveo's debt on a negative outlook, noting the recent difficulty in refinancing that will leave a significant portion of CVO's 2013 bond outstanding. TEXT I recently made the same observation. CVO

With stocks purchased as part of the Lottery Ticket Basket Strategy, I do not need to fully comprehend a firm's products. At best, I have only a superficial understanding of the products made by PLX Technology (PLXT). Yesterday, this company issued a press release announcing a new 10GBase-T PHY Optimized for ToR Switches. This is a snapshot of the first paragraph of that press release:

The RB thinks that is really cool. Bought 70 PLXT at $3.37-a LT; and PLXT (2/23/12 Post)

1. Bought 2 RadioShack 6.75% Senior Bonds Maturing 5/15/2019 at $80 Last Friday (Junk Bond Ladder Basket Strategy)(see Disclaimer): I recently discussed RSH in connection with a LT purchase of its common shares. Item # 3 Bought 40 RSH at $6.89-LT CATEGORY I mentioned this 2019 senior bond in that post and discussed RSH's debt which appears manageable to me. 

According to FINRA, this bond is rated Ba3 by Moody's and B+ by S & P. 

Assuming RSH survives to pay off this bond in about seven years, I have a $400 profit built into this position plus semi-annual interest payments. 

This bond was originally offered in a private placement which is typical. That offering occurred in May 2011. Last October, the bond was registered with the SEC and consequently became available for purchase by the hoi polloi

In addition to my earlier comments, I would note a recent development concerning an agreement with a Malaysian retail group called Berjaya Retail Berhad. RadioShack Announces Southeast Asia Expansion With Berjaya In this deal, Berjaya is expected to open 1000 RSH franchise locations in ten Southeast Asian countries. When I read this news release, I thought that it was a significant positive development, but investors did not respond as the stock continued to drift sideways to southward on the day of the press release. RSH Historical Prices Another investor picked up on this development to support his buy recommendation, Seeking Alpha.

Instead of buying the stock, however, I decided to pick up the bond which gives me a guaranteed 10.742% annualized return provided RSH survives to pay off the principal at maturity and to make all interest payments.

My confirmation states that the current yield at my cost is 8.395%, while the yield to maturity is 10.742%.

2. Sold 50 SHOPRD at $25-Roth IRA (see Disclaimer): SHOPRD pays a 8% cumulative dividend on a $25 par value.  Bought 50 SHOPRD at 24.15 in Roth IRA PROSPECTUS SUPPLEMENT

With two quarterly dividend payments, the total gain for this position was $78.47. The position was bought on 7/7/11 for a total cost of $1,214.5. 

I still own 50 shares of SHOPRA. 


Sunstone Hotel Investors Inc. 8.00% Cum. Redeem. Pfd. Series D  (SHO.PD) at $25 yesterday.

I have been raising my cash level in the ROTH IRA just in case the market repeats its performance from last year, where strength early in the year gave way to a significant correction. 

3. BOUGHT 40 GGAL at $6.72 Last Friday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer)Grupo Financiero Galicia S.A. is the holding company for the Banco de Galicia y Buenos Aires, which operated 239 bank branches in Argentina as of 12/31/2010.

Holding Company Website: GFG HOME

Press Release Announcing 4th Quarter and 2011 Earnings: .pdf That information is also filed with the SEC as an exhibit to Form 6-K. SEC Filed Press Release 

Profile at Reuters. In an article at Reuters, it is stated that GGAL reported 4th quarter net profit of 355.1 million pesos or $82.5 million, up 87% from the year ago period. This is the number in the above referenced press release. That release also states that the earnings were .286 Pesos per share or 2.86 Pesos per ADS. Each ADS share is equal to 10 ordinary shares. 

At Bloomberg, I noted that the estimated P/E for 2012 was 4.02, but can not verify that number. The YF Key Statistics page shows a trailing P/E of 3.29; price to sales at .64 and price to book at 1.01 as of last Friday when I purchased the shares. 

Some articles about this bank can be found at

This LT selection was based primarily on valuation. I do not purport to know much about this bank. I can look at a chart and see that it has been banged up pretty good over the past year. The stock traded at over $14 in August 2011 and fell precipitously thereafter.  GGAL Interactive Chart For most of 2012, the  stock has been meandering between $6 and $8.  A smashed stock price is another LT characteristic. 

Part of the problem is linked to the Argentine government, as discussed in this Motley Fool article. 

I recall reading a book many decades ago that discussed what went wrong with Argentina. While I am a little fuzzy on the details, there was a time around the Civil War when the GDP of the U.S. and Argentina was about the same. A century ago, there were only seven countries in the world more prosperous than Argentina. What Happened to Argentina? - The problem has been the government that is explored in this Wikipedia article on the Economic history of Argentina. Perhaps, some lessons have been learned and mistakes from the past will not be repeated with such frustrating regularity. Since most people do not learn anything from history, and will repeat the same mistakes over and over again,  I would doubt that result.

Earlier this week,  Argentina's national statistics agency, Indec, reported that GDP increased 7.3% in the 2011 4th quarter, better than the consensus estimate of 7%. Argentina's central bank is forecasting 6% growth in 2012.

Grupo Financiero Galicia S.A. ADS (GGAL) has been sliding since my purchase, closing at $6.38 in trading yesterday.  The 52 week range is between $5.6 and $14.76. 

No comments:

Post a Comment