Monday, March 12, 2012

Jobs/Bought 50 WPX at $18.37/Bought 50 BHLB AT $21.66/BOUGHT 88 STL AT $8.98/Regional Bank Table as of 3/9/2012

The jobs picture in the U.S. is without question improving. The Labor Department reported last Friday that nonfarm payroll employment increased by 227,000 in February. Employment Situation Summary Private sector employment increased by 233,000. The government also added 61,000 new jobs to its previous estimates for December and January. With the revisions, private sector employment has increased at an average rate of 251,000 over the past three months. The U-6 number, an alternative measure of "labor underutilization" fell to 14.9 from 15.1 in January. Table A-15. Alternative measures of labor underutilization

This is a snapshot of some historical U-6 data that shows the improvement in this number since the onset of the Near Depression:

A potentially worrisome sign was a $31.48 billion dollar trade deficit posted by China for February.

Preacher Rick called Obama a "snob" because he wanted people to go to college which are "indoctrination mills," NYT. The TBs applauded his remarks. As I understand his argument, a primary purpose of higher education in the U.S. is to turn young adults away from religion.

According to a study cited in a article, those not attending college were more likely to stop going to religious services and to report no religious affiliation than those going to college.

1. BOUGHT 50 WPX at $18.37 Last Wednesday (see Disclaimer): WPX Energy was recently spun out of the Williams Companies (WMB). I was unaware of the company until it popped up on the Morningstar screen of stocks selling at the largest discount to Morningstar's fair value estimate. I then read the Morningstar report available to subscribers.  That service rates WPX at 5 stars with a consider to buy recommendation at below $24. 

I then noticed a favorable reference to WPX in the Trader column in last week's Barron's. The stock was being touted by a money manager, Craig Giventer, who claimed that the stock was significantly undervalued by the market. At the time of his interview, that manager argues that WPX's 69% stake in APCO Oil & Gas International (APAGF) was worth about $6.5 per WPX share. If that amount is subtracted from the WPX enterprise value, then the shares trade at close to $.83 per Mcf of its proven natural gas reserves.  The recent acquisition of El Paso Energy was at $2.13 per Mcf. The share valuation at $.83 per Mcf does not take into account other proven liquid reserves of close to 200 million barrels of oil equivalent. 

I spent about an hour reviewing analyst reports and SEC filings. I would need to spin more time before investing more money. One knock on the company is its dependence on natural gas.

Profile at Reuters
2011 Annual Report Form 10-K

The company is not profitable, reporting a 2011 net loss of $1.43 per share from continuing operations. SEC Filed Press Release That is another reason to limit my exposure to just 50 shares. On an adjusted EBITDAX basis, which excludes interest expense, income taxes, depreciation, depletion and amortization, the company had a positive number of $1.33 billion for 2011, essentially unchanged from the $1.329 for 2010.

WPX Energy fell 18 cents last Friday to close at $18.67. I would add that APCO has fallen sharply since late February. APAGF Stock Charts The sell off started when that company reported 4th quarter earnings on 2/28/12, APCO SEC Filed Earnings Press Release

2. BOUGHT  50 Berkshire Hills Bancorp (BHLB) at $21.66 Last Thursday (Regional Bank Basket Strategy)(see Disclaimer): BHLB is a small bank headquartered in Pittsfield, Massachusetts, with branches in MA, NY, and Vermont.

Last October, Berkshire Hills Bancorp made an offer to acquire The Connecticut Bank and Trust Company (CTBC) that has 8 banking offices in the greater Hartford, Conn. area.CTBC is not a profitable bank and has a high NPL loss ratio of 5.6% to total loans as of 12/31/2011. CBT Announces Results for Quarter and Year Ended December 31, 2011 (Nasdaq:CTBC) That bank appears to have government preferred stock ($5.448 million) still on the balance sheet. I do not view the foregoing in a positive light. Possibly, BHLB believes that the acquisition is a less expensive way to expand its geographic area into Connecticut than the alternatives.

A presentation made at an investor's conference shows a map of the branch locations.

In 2011, Berkshire Hills expanded its operations by acquiring Rome Bancorp  and Legacy Bancorp.

For the 4th quarter of 2011, BHLB reported a 57% increase in core earnings per share and declared a 17 cent per share quarterly dividend representing a 6% increase from the prior quarter. SEC Filed Press Release Net income from continuing operations was $7.558 million or 36 cents per share, up from 26 cents per share in the 4th quarter of 2010. The bank sold some branches that it acquired in its M & A activities, and had a 4 cent per share net income from those discontinued operations.

As of 12/31/2011, the net interest margin was 3.61% (up from 3.3% in the 2010 4th quarter); the efficiency ratio was 59%; NPAs to total assets stood at only .66%; the tangible equity to tangible assets ratio was 8.78%; and the allowance for loan losses to non-accruing loans was 134%.

The consensus E.P.S. estimate is for $1.92 this year and $2.18 next year. BHLB Analyst Estimates

While BHLB's shareholders did suffer during the Near Depression, there was not a dramatic decline in the share price. BHLB Interactive Chart The shares moved from around $13 in July 2000 and had a series of tops in the $38-$39 range in 1/2004, 8/2004, and 9/2006. The stock started to show weakness before the S & P 500 top in October 2007, which was the case for many financial stocks. Since October 2007, the stock has moved mostly in a range between $16 to $25, with a brief movement to $30 during the later part of 2008. Importantly, the bank did not cut its dividend during the last recession. The annual rate was 56 cents in 2006; 58 cents in 2007; 63 cents in 2008; and 64 cents in 2009, 2010, and 2011. For 2012, the bank did raise the quarterly rate to 17 cents per share which would bring the annual rate to 68 cents.  BAC is still paying 1 cent per quarter.

Berkshire Hills Bancorp rose 41 cents in trading last Friday to close at $22.18.

3. BOUGHT 88 STL at $8.98 Last Thursday (Regional Bank Basket Strategy)(see Disclaimer): This was a partial fill on a 100 share limit order. I have previously bought and sold STL's common shares. Bought 50 STL at $6.58 Sold STL at $10.5 Sterling Bancorp is based in NYC. Sterling National Bank Locations

I also currently own 200 shares of a TP that contains a STL junior bond and have traded it several times. Those shares are owned in a ROTH IRA. Trust Preferred Securities: Links in One Post Bought 50 of the TP STLPRA at $8.99Added 50 STLPRA at 8.69Sold 50 STLPRA at $9.4Sold 100 of the TP STLPRA at 10.25Bought 50 STLPRA @ 10.21Bought 200 STLPRA @ 10.14Added 40 STLPRA at 10.14 in Regular IRAAdded 100 of the TP STLPRA at $9.87SOLD 250 STLPRA at 10.2 The TP has a 8.375% coupon on a $10 par value:

The consensus E.P.S. estimate for STL is 64 cents in 2012 and 76 cents in 2013.

The bank is currently paying a quarterly dividend of 9 cents per share. At a total cost of $8.98, the dividend yield at that rate would be about 4%.

For the 4th quarter of 2011, STL reported net income of $5.3 million or 17 cents per share, up from 13 cents in the 4th quarter of 2010. As of 12/31/2011, the net interest margin was 3.77%; the tangible common equity ratio was 8.01%; NPAs stood at .33% of total assets; the total risk based capital ratio was 13.71%; and the allowance for loan losses to non-accruing loans was 315.02%.

Sterling did cut its dividend in response to the recent recession. The annual rate was 76 cents in 2007; 57 cents in 2008; 47 cents in 2009; and 36 cents in 2010 and 2011. With the current quarterly rate of 9 cents, it looks like 2012 will be another 36 cent year. I view the foregoing negatively of course.

As previously discussed, STL did participate in TARP and has redeemed the government's preferred stock. I do not view participation in the TARP program or the sell of stock at depressed prices to pay back the government in a positive manner. SEC Filing by STL: March 2011 Common  Offering  STL sold 4.025 million shares at $9.6. Sterling-SEC Form 8-k

Sterling Bancorp rose 18 cents in trading last Friday to close at $9.28.

4. Regional Bank Table as of 3/9/2012: I accidentally omitted SYBT from the last published table. The following includes that stock and the two mentioned above:

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