Wednesday, April 18, 2012

1940 Census/Motley Fool Article on Xinyuan/Coca Cola/Zurich Financial/CNB Financial/Edgen Group IPO-Edgen Murray Senior Secured Note/Argentina's President-A Hugo Chavez Want to Be

I was able to find my parents listed in the 1940 Census records easily, since I knew their street address at that time. My mother recalls two spinsters living with their elderly father nearby, and she was surprised to learn that both of them were making substantially more than her dad. Percy Priest also lived nearby with his father at 4305 Elkins Avenue -1940 Census. Priest was a powerful congressman from Nashville who, along with Tennessee's two Democrat Senators, Estes Kefauver and Albert Gore Sr. (Al Gore Junior's dad), refused to sign the Southern Manifesto, which stated opposition to racial integration of public places.

(note: the wage number is listed in column 32 of the 1940 census, and it is an annual number for 1939. It is not unusual in this census to see extended families and several generations living together, as well as rooms being rented out to lodgers to help pay the bills. The two sisters were Ruth and Mary Naron living with their 70 year old father at 4301 Elkins. Ruth made $1,200 and Mary $1,970 in 1939, with the later number being more than twice as much as my grandfather. The minimum wage was 30 cents per hour, and the average annual salary for those employed was $1,900. The unemployment rate averaged 14.6% in 1940 which was an improvement over the 23.6% rate in 1932. The U.S. debt was $42.97 billion in 1940, Wikipedia)

My paternal grandfather reported an annual 1939 income of $1,680. Both families had five children. My father and his brothers were all old enough to serve in WWII, three of them in Europe, whereas my mother's brothers were too young. Fortunately, my father and his brothers survived.

In the advisory vote on compensation, Citigroup's shareholders voted "no" on executive compensation. WSJ

The Edgen Group filed another Amendment to its S-1 registration statement regarding its proposed IPO. Amendment No. 4 to Form S-1 This is the first time that Edgen mentioned the total number of shares and price range anticipated in the offering. I have no interest in the stock. I do own 1 Edgen Murray senior secured bond, FINRA. The relationship of Edgen Group and Edgen Murray is shown in a chart at page 11. Since the proceeds will be used to pay down debt of the consolidated subsidiaries (page 45), I view the IPO as a positive for the bondholders. The note that I own, which matures in 2015, is mentioned at pages F-19 to F-20. At the present time, I have no intention of selling it. Bought 1 Edgen Murray Senior Secured Bond Maturing 2015 at 97.5

I heard Cramer say "stay away from Argentina", which is probably good advice. The government is hostile to business and any sensible economic policy. This article at MarketWatch discusses the latest effort to undermine a shareholder of YPF S.A. ADS through a nationalization. Argentina proposes to seize the 51% of YPF shares from Spain's Repsol YPF S.A. Once nationalized, the company can be turned into a repository for political patronage.

As noted in a recent post, there is general agreement among economists that the government in Argentina is the main cause for retarding economic growth and progress in that country. My only position in a company based in Argentina is a recent 40 share purchase of GGAL at $6.72 in my LT Category. I have no intention of buying anything else since it is clear that Argentina's President is intent on doing her best imitation of Hugo Chavez. The next Venezuela? In the last analysis, the voters in a democracy deserve their government. Consequently, Argentina deserves Cristina Fernández de Kirchner, who won her second four year term with 54.1% of the vote last October, as well as all of their prior democratically elected leaders.

1. Coca Cola (own 132+ shares): KO reported first quarter net income of $2.05 billion or 89 cents per share on a 6% increase in revenues to $11.137 billion. 2012 Q1 Earnings Release The consensus estimate was for 87 cents and $10.82 billion in revenues. Cash from operations grew 8%.

I view KO's growth prospects to be primarily in emerging markets. Item # 1 Barrons   (August 2009 Post) This last report showed decent volume increases in developed markets, including 3% in Germany, 6% in Spain and 1% in the U.S. The volume growth in India was 20% and 9% in China.

A positive article was published yesterday in Barrons about this earnings report.

Coca-Cola shares rose $1.51 yesterday to close at $73.95. That increase took my unrealized gain to over $3,000:

KO Unrealized Gain as of 4/12/12 =$3,075.19
I am no longer using the dividends to buy more shares. I am not likely to add to my position over $55 per share.

2. Zurich Financial (own): I received the annual dividend paid by Zurich on 4/16/2012. No withholding tax was withheld, and the distribution was tagged as a "return of capital". If that classification holds, then my cost basis in the shares will be reduced by an equivalent amount but at least I do avoid having the distribution reduced by Switzerland's withholding tax:

I previously referenced a statement from the company that there would be no withholding tax applied to this payment. The symbol has changed since my purchase. The new symbol is ZURVY.

Fidelity has already reduced my cost basis to reflect the return of capital distribution:

Adjusted Cost Basis ZURVY $22.95 per share
I bought the 100 shares at $24.72 plus a $7.95 commission or for a total cost of $24.80.  BOUGHT 100 ZFSVY at $24.72

I own this security in a taxable account so the return of capital adjustment has to be made. In addition to avoiding the Swiss withholding tax due to that classification, I can in effect convert a dividend into a long term capital gain by waiting at least a year from my purchase date and selling this security for over $24.9. That does not matter at the federal level when the dividend and a long term capital gain are both taxed at 15%. It does matter to a Tennessee taxpayer who has to pay a 6% tax only on certain dividend and interest payments.

Zurich ADS shares rose 53 cents in trading yesterday to close at $24.35.

3. CNB Financial (CCNE)(own: Regional Bank Basket Strategy): CNB reported 1st quarter net income of $4.3 million or 35 cents per share, a 32.7% increase in diluted E.P.S. over the 2011 first quarter. SEC Filed Press Release announcing first quarter earnings

As of 3/31/12, the net interest margin was 3.47%; the total risk based capital ratio was 15.14%; the tangible common equity to tangible asset ratio was 7.3%; and NPAs to total assets stood at 1.03%. Total loans increased 8.5% compared to the first quarter of 2011, with deposits growing 17.2% over the same period.

I do not see a need to do anything with my shares. Bought 50 CCNE at 11.06 (June 2010).

CNB Financial shares rose 34 cents to close at $16.45.

4. Xinyuan Real Estate (XIN): After reading an article about Xinyuan's 4th quarter earnings report at the Motley Fool, I felt compelled to leave a comment, using the name "southgent".

I view it to be important that all investors perform research using original source materials. Unfortunately, many individuals are too lazy to do so and rely on others to relay material information to them.

When I read this article at Motley Fool, I knew that the author was wrong about important details regarding XIN's 4th quarter earnings report because I had read the firm's press release announcing earnings.  I noted in a prior post that this Chinese developer reported 38 cents per ADS. XIN The Xinyuan stock, which is traded in the U.S. is an ADS, and each ADS share represents 2 ordinary shares:

Purchase of 50 XIN at $2.37-LT Category/Confirmation States that 1 ADS=2 Ordinary 
Lottery Ticket Basket Strategy Added 50 to LT XIN at 2.36 Bought 50 XIN at 2.57-LT

Thus, the company reported 19 cents per ordinary share and 38 cents per ADS share. The expectation from the one analyst was for 33 cents. That estimate is for the ADS shares. The company beat that estimate by five cents.

The author of the Motley Fool article claimed that XIN missed the earnings estimate of 33 cents with the 19 cent number, which is just wrong. He also mislabels the 19 cents as a non-GAAP number whereas it is the GAAP number for the ordinary shares. SEC filed press release

Xinyuan Real Estate Co. announced earlier today that it was switching from an annual dividend to a quarterly dividend. The firm will start paying a 4 cent per ADS quarterly dividend. At a total cost of $3.41, the closing price from yesterday, the dividend yield would be about 4.7%. 

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