Thursday, March 8, 2012

Bought 50 RRST at $3.95-LT Category/Jobs/Appleton Papers/CTL/John Hussman's Warning on Stocks/

Some bearish arguments made by John Hussman and Walter Zimmerman, a technical analyst, are summarized in Randall Forsyth's Barrons column. The referenced opinion of John Hussman can be found in his weekly market comment, particularly his last one titled   "Warning: A New Who's Who of Awful Times to Invest".

For the 4th quarter of 2011, Eurostat estimates that GDP declined .3% in both the euro area (EA 17) and the EU 27, compared to the third quarter of 2011.

Maureen Dowd wrote a good summary of recent statements by Romney and other GOP politicians that indicate an urge to start a war with Iran. NYT

The Street published an article yesterday that listed 10 small and profitable banks that pay out generous dividends. Of those banks, I own RNST, TRST, UVSP, VLY, NYB, and FFBC as part of my Regional Bank Basket Strategy.

ADP reported yesterday that private sector employment increased 216,000 from January to February on a seasonally adjusted basis. The consensus estimate was for a 208,000 jobs gain.

Most of my Canadian securities pay monthly dividends in Canadian Dollars. Those securities are held in a taxable account. The following snapshot shows some activity last night in a taxable account:

Canadian Dollar (CAD) Strategy

I recently bough Enerplus, a Canadian energy company that pays monthly dividends, in a retirement account to test the proposition that Canada will not require tax withholding for dividends paid into a retirement account. Bought 50 ERF at $24.39-ROTH IRA ERF and MSPRA Mentioned In Latest Richard Lehmann Forbes Column Canadian Tax Resource Blog I did recently review a snapshot from another person's account that showed no withholding for ERF's dividend paid into a retirement account. ERF was ex dividend yesterday.

1. APPLETON PAPERS (own 1 Bond: FINRA):  Appleton is a non-public company owned by its employees. For the 4th quarter, the company reported operating income of $3.876 million  on $205.624 million in revenues. SEC Filed Press Release The operating income number does not include several expenses such as interest. When those expenses are deducted, and why would I ignore such an important expense, Appleton suffered a $11.660 million dollar loss from continuing operations during the 4th quarter. Interest expense was $14.385 million.  

For 2011, the net loss was $2.212 million, much better than the $35.163 loss in 2010. However, the $23.229 million received in litigation, a non-recurring item, enhanced results. Interest expense for 2011 was $61.33 million. The total equity as of 12/31/2011 was ($189.937 million).  

The company reduced debt by $50.5 million in 2011. Part of that debt reduction was enabled by a $23.2 million net recovery in a lawsuit. As of 12/31/2011, the company had $510.533 million in long term debt and $7.241 million in cash and cash equivalents. The last 10-q shows the components of that $510 million in long term debt at 21. The senior secured second lien note, the one that I own, had $161.766  million outstanding at that time.

As discussed when I purchased this bond, there is a higher priority first lien senior secured note with $305 million outstanding that comes due a few months before the second lien note. Item # 1 Bought 1 Appleton Papers 2nd Lien Bond at 95.75 Appleton's operating history, and the size and maturity of the first lien note, substantially increase the risk of the second lien note in my opinion. For that risk, I receive a greater yield but I will not risk more than a thousand based on my assessment of the risk.  

I view the sheer amount of debt and the lack of profitability to be the main problems. Another issue is the lack of liquidity for this bond. I will not buy another one.   

While this report has some positive items, I view it negatively in its totality. I am increasing my risk rating on my 1 Appleton second lien bond to 8 from 6+. Personal Risk Ratings For Junk Bonds

The price of the bond has not yet reacted much to this latest earnings report. Volume is usually light and the recent trades were mostly between 91 to 95. This bond matures on 12/15/2015 and has a 11.25% coupon.

2. CenturyLink (CTL)(own senior bonds): CTL sold earlier this week $1.4 billion in ten year senior notes with a YTM of 5.821% (coupon 5.8%) and $650 of 7.65% thirty year senior notes. CenturyLink Prices $2.05 Billion of Debt Securities FWP for 5.8% 2022 Notes FWP for 7.65% 2042 Notes

The proceeds are being used by Embarq, one of the telephone companies previously acquired by CTL, to fund a tender for Embarq's 7.082% notes due 2016 and its 6.738% notes due 2013. CenturyLink Announces Increase of Tender Cap for Tender Offer of Embarq Corporation Notes I do not own those notes, nor do I own any note issued originally by CTL. Instead, I have owned trust certificates containing senior unsecured notes issued by Embarq and Qwest Trust Certificates: New Gateway Post

I currently own 150 shares of PJA, a TC with a 8% coupon containing a senior Qwest Capital bond maturing in 2031. Bought 50 PJA at 19.45 December 2009 Bought 50 PJA at 24.65 December 2010 Bought 50 of the TC PJA at 25.06 April 2011 Added 50 of the TC PJA at $24.6 November 2011 Sold 50 PJA at $25.4-ROTH IRA I have already harvested my gains in FJA, a TC containing a senior Embarq bond maturing in 2036.

2010 FJA 50 Shares +$458.02
2011 FJA 50 Shares +$516.02
I have also bought and sold the TC KCW, which contains a senior U S West Communications bond. U.S. West was acquired by Qwest who was later cobbled up by CTL. I currently own 2  U.S. West 7.5% senior bonds with $1,000 par values maturing in 2023. Bought 1 U.S. West Communications 7.5% Senior Bond Maturing 6/15/2023 at 100  Bought 1 U S West Communications 7.5% Senior 2023 Bond @100.13 -ROTH IRA

3. Bought 50 RRST at $3.95 Yesterday-LT Category (Lottery Ticket Basket Strategy)(see Disclaimer): The RB has been set free to do its thing, strut its stuff, within the confines of the Lottery Ticket Basket Strategy of course. That limits the maximum damage to Headknocker's capital base at $300 per stock. The $300 maximum limit per security can only be increased by prior profits realized from trading the stock.

RRsat Global Commuications is an Israeli company that provides global distribution services 24/7 to more than 630 channels and also offers occasional use services for sports, news and other events.

Profile at Reuters.
Key Developments page at Reuters.

RRST has one ugly chart, which is typical for LT selections. The stock broke down back in December 2007, falling below its 200 day SMA at around $19.18 on 12/24/2007, and it has been on a downhill slope since that time.  RRST Interactive Chart

This selection is based primarily on the following statistics:

YF Key Statistics as of 9/30/11:
PEG 5 Year Estimated= .6
Price to Sales=.62
Price to Book= .83
Cash Per Share= 1.65 (more as of 12/31/11) 
Total Debt= 0

The company is profitable. The current consensus estimate is for an E.P.S. of 41 cents this year and 44 cents next year. For the last quarter, the company reported earnings of 9 cents per share. RRST 4th Quarter 2011 As of 12/31/11, the company had $33.2 million in cash, cash equivalents or marketable securities, up from $28.7 million as of 9/30/11. The market cap is close to $68 million at the current price. Morningstar

Other SEC Filed Press Releases: 

The company has been paying a variable dividend. I checked the historical data and found that the company paid an annual dividend per share of 61 cents in 2009; and 49 cents in 2010. (page 6: 2010 Annual Report). The company paid 35 cents in 2011. The last cash dividend west ex dividend in August 2011.

I did find this statement about Israel's 20% withholding tax for the August 2011 dividend:

The dividend probably depends in part on earnings, which were down in 2011 compared to 2010, and the amount of necessary capital expenditures. The company had a loss in the third quarter of 2011.

RRSat Global Communications declined 5 cents in trading to close at $3.9. The 52 week trading range is between $3.5 and $7.75. The 3 month average volume is only 4,874 shares, and 55,900 traded yesterday. There is generally a wide bid/ask spread so I used a limit order.

There are of course unique risks attached to a company based in Israel. For that reason and others, this purchase was categorized as a LT. 

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