Friday, July 6, 2012

Bought 50 FIATY at $5.17-LT/Sold 100 FPCPRA at $25.9/ADP Employment Report

ADP reported yesterday that private sector employment increased 176,000 from May to June on a seasonally adjusted basis. adpemployment Of that amount, small businesses added 93,000, while large businesses continued their sluggish hiring with only 16,000 new jobs. The large firms are the ones moving factories overseas or outsourcing to low wage companies in places like India, while sitting on a record amount of cash and whining about the need for more tax breaks. The consensus estimate was for 105,000 jobs.

The European Central Bank cut its key interest rate to .75% from 1% yesterday. ECB: Monetary policy decisions

China's central bank also lowered its rates yesterday. MarketWatch

Bank of England announced another round of quantitative easing.

The ISM services index fell to 52.1% in June from 53.7% in May. The estimate was for 52.9%.  The new order component fell to 53.3 from 55.5. Employment rose to 52.3 from 50.8.

Freddie MAC reported yesterday that the average rate on a 30 year mortgage hit 3.62%. The average 15 year mortgage was at 2.89%. Primary Mortgage Market Survey (PMMS) - Freddie Mac

A number of recent statements made by Florida's governor Rick Scott have been rated false by Politifact. PolitiFact | Rick Scott's file Nothing said by Scott can be accepted as accurate unless confirmed by a fact check first.  He is just too unreliable.

A new bond fund from Market Vectors invests in "fallen angel" bonds. Fallen Angel U.S. Bond ETF (ANGL). This ETF will attempt to track, before fees and expenses, the price and yield performance of the BofA Merrill Lynch U.S. Fallen Angel High Yield Index. That index will consists of junk bonds that were originally rated investment grade at the time of issuance. I found this fund to be somewhat interesting, but do not have a current position. I have bought small positions in bonds from some of the issuers that would be included in this index, including J.C. Penney, Sprint, and R.R. Donnelley.  The Market Vector bond ETFs pay monthly dividends. Market Vectors Income ETFs Announce June 2012 Distributions Of the ones listed in that press release, I own only 100 shares of EMLC, primarily for diversification purposes.

Duke Energy and Progress Energy have completed their merger. Immediately prior to the merger's completion, Duke's stock underwent a 1 for 3 reverse stock split to reduce the number of shares outstanding.

1. BOUGHT 50 FIAT (FIATY) at $5.17 Last Tuesday (Lottery Ticket Basket Strategy)(see Disclaimer): FIAT has been on my LT monitor list for a few months. I initially noticed it as one of the stocks selling at large discounts to Morningstar's fair value calculation. At the time of my purchase, it was selling at the largest discount to fair value in Morningstar's coverage universe. The analyst covering Fiat at Morningstar pegs fair value of the U.S. ADRs at $19. Based on a stock close at $5.23 last Tuesday, price to Morningstar's fair value was at .28.  Morningstar has a five star rating on FIATY

FIATY is an ADR traded on the pink sheet exchange. One ADR share equals one ordinary share. 

What caused me to pull the trigger for a LT purchase was this article in Barrons.com that focused on the value of Fiat's stake in Chrysler and Maserati. That article is self-explanatory. 

A few days ago Fiat increased its stake in Chrysler to 61.8%. Fiat is likely to increase its stake in Chrysler, possibly to 100%. The Fiat CEO stated that Fiat could buy the remainder of Chrysler at anytime. He also stated that Chrysler's 2012 operating profit could exceed $3 billion. 

Chrysler's June 2012 sales increased 20% year-over-year to 144,811 units.

The shares are traded in Milan under the symbol F.MI. The shares closed last Tuesday at €4.13. Historical Prices Based on a EURUSD currency exchange of 1.2607 for 7/3/12, the €4.13 closing price would translate into a $5.2066 price for the FIATY ADR. 

For the host country shares, the 52 week range is between €3.25 and €7.8. Before the Near Depression, the Milan shares were trading at over €20, F.MI Interactive Chart

Fiat SpA (FIA.MI) Profile Page at Reuters

Fiat SpA (FIA.MI) Key Developments Page at Reuters

Company website: FIAT S.p.A. - Home

The dividend policy is to pay out 25% of consolidated net profit in dividends with a minimum payout of €50M: FIAT S.p.A. - Dividends

As of 7/3/12, the price to sales was .08; and price to book was at .57. Financials

Fiat S.p.A. ADS rose 10 cents in trading yesterday to close at $5.33.

SNAPSHOT OF TRADE:



2. Sold 100 FPCPRA at $25.9 Yesterday (see Disclaimer): This TP is now an obligation of Duke Energy as a result of the recently completed merger with Progress Energy. I suspect that this security will be called in the near future at the $25 par value plus accrued interest.  I bought those shares about one month ago at $25.35.

FPCPRA is in effect now a junior bond issued by Duke once the investor cuts to the chase. A senior Duke bond maturing in 2038, with a 6.05% coupon, was selling yesterday at over 134 for a YTM of less than 4%.

In addition, while I have a positive opinion about the credit risk, there is a substantial amount of interest rate risk associated with a bond maturing in 2039, in the event it is not called, and a 7.1% coupon on such a long bond purchased at over par value is questionable compensation for that risk.  Prospectus

I still own 50 shares held in the ROTH IRA where the interest payments are tax free.

FPC Capital I 7.10% Cum. QUIPS Series A (FPC.PA) closed at $25.93 in trading yesterday, up 8 cents for the day. 

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