Tuesday, October 16, 2012

Continued Downdraft in Mortgage REITs/Lottery Ticket Basket Table as of 10/15/12/Bought as Lottery Tickets: 50 SIMG at $4.33 and 50 TTI at $5.98

For the fiscal year ending on September 30, 2012, the U.S. government ran its forth consecutive one plus  trillion dollar deficit. The deficit for the 2012 F/Y was reported last week at $1.089 trillion. Final Monthly Treasury Statement.pdf  The F/Y 2011 deficit number was $1.297 billion. The peak was hit in F/Y 2009 at $1.4123 trillion. Total U.S. government debt is currently over $16 trillion. Debt to the Penny (Daily History Search Application) It was less than $1 trillion when Ronald Reagan was sworn in as President in 1980.

Even with rock bottom interest rates, the government paid over $359 billion in interest for the 2012 F/Y. Government - Interest Expense on the Debt Outstanding When rates return to normal levels in a few years, and the debt continues to grow, it would not be unreasonable to predict interest expense exceeding one trillion per year. The government paid over $451 billion in interest during the 2007 F/Y, before the onset of the trillion plus deficit years.

China’s exports and money supply grew more than expected during September.

The government reported that retail sales rose 1.1% in September. Core retail sales, which excludes autos, gasoline and building materials, rose .9%. census.gov/retail.pdf

The N.Y. Fed's manufacturing index for N.Y. rose to a minus 6.16 from a minus 10.41 in September.  Empire State Manufacturing Survey (overview) - Federal Reserve Bank of New York

I added a couple of stocks to my lottery ticket basket, bringing my total up to 40 stocks in this basket:

Total Investment in LTs  as of 10/15/12: $8,674.71
Realized Gains in LTs: $11,339.27
Current Capacity for Future LT purchases: +$2,664.56
Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

The LT Basket contains an odd assortment, with the largest unrealized gain being the recently purchased 30 shares of Terex, Bought TEX at $14.43-LT Category (7/26/12 Post):

Lottery Ticket Basket as of 10/15/12
Xerox, Aegon (AEG), Huntington (HBAN) and KeyCorp have been promoted to other categories.  Link to last table post: Lottery Ticket Basket Table as of 7/27/12

1. Bought TTI at $5.98 Yesterday (Lottery Ticket Basket Strategy)(see Disclaimer): Tetra Technologies is a diversified oil and gas services company.

Profile at Reuters

Key Developments at Reuters

Form 10-Q for the Q/E 7/12
This Lottery Ticket selection was based solely on the following statistical criteria and the value of TTI's stake in Compressco Partners (GSJK) (see below).

The key statistics are based on on a $5.99 share price, the most recent financial statement and current analyst estimates:

Price to Book: .87
Price to Sales: .59
P.E.G Ratio 5 Year Expected: .69
Forward P/E: 6.97
TTI Key Statistics

The consensus E.P.S. estimate for 2012 is for $.58 and $.86 for 2013. TTI Analyst Estimates

The 52 week range is between $5.85 to $10.66. The stock came close yesterday to its $5.85 fifty two week low, hitting $5.86 intra-day.

The five year chart shows a steady decline from April 2011 to present and a waterfall decline from $24 in June 2008 to $2.33 in March 2009: TTI Interactive Chart  Ugly looking charts are the sine qua non of LT selections.

TTI has a large percentage ownership of Compressco Partners (GSJK) that it took public last year: IPO Prospectus Compressco Partners, L.P. ($20 per common unit). The market cap of GSJK at yesterday's closing price of $17.25 is around $268 million. Link to recent SEC Filed Investor Presentation for Compressco:  SEC Indirectly through the General Partner of GSJK, TII owns 73% of of the limited partnership units and another 9.5% through its international subsidiary Tetra International. (see chart at page 15).

2011 Annual Report

A recent discussion of this company can be found in this Seeking Alpha article.

I did notice that the firm has been involved in a number of cash acquisitions, and has divested its oil and gas properties owned by its subsidiary Maritech. The largest of those dispositions was the sale of 79% of those properties for a base purchase price of $222.5M. SEC Form 8-K  In 2012, the company has acquired Eastern Reservoir Resources, a division of Patterson-UTI Energy, for $42.5M in cash; Graywolf Productions Systems for $55.5M in cash; and Optima Solutions Holding for 41.2 million pounds sterling (approximately $65M in cash), plus up to an additional 4 million pounds sterling depending on earnings over a two year period. SEC Form 10-Q at pp. 9-10 Those acquisitions amount to about $163M in cash. Each of those acquisitions represent an expansion of TTI's Production Testing Segment. The company has four business segments after the disposition of its oil and gas properties.

Judging solely by the price action of the stock, the market does not appear to be impressed with those acquisitions.

Yesterday's Close: TTI: 5.97 -0.02 (-0.33%)

2. Bought SIMG at $4.33 Yesterday (Lottery Ticket Basket Strategy)(see Disclaimer): According to our esteemed scholar RB, who has never sweated the details, Silicon Image makes thingamajigs. The company provides connectivity solutions for mobile, consumer electronics and personal computer markets that enable the distribution and presentation of high definition content.

Company Website:  Silicon Image - Enhancing the connected HD experience
Silicon Image Profile Page at Reuters
Silicon Image Key Developments Page at Reuters.

For the Q/E 6/30/12, SIMG reported non-GAAP E.P.S. of 5 cents per share, up from a non-GAAP loss of 2 cents per share in the 2011 2nd quarter. Revenues increased to $63.8M from $53.6M in the year earlier quarter.  SEC Filed Press Release

The consensus estimates are for a third quarter E.P.S. of 9 cents, 21 cents for 2012 and 37 cents for 2013. SIMG Analyst Estimates I would assume those are non-GAAP numbers.

Cash, Cash Equivalents and Short Term Marketable Securities as of 6/3012=$147.353M
Cash per share as of  6/30/12= $1.79
Long term debt=0
SEC Form 10-Q at page 3

The company has made some investments in privately held technology companies (see page 10)

Key statistics are based on a $4.3 share price, the most recent financial statement and the current consensus analyst estimates:

Key Statistics as of 10/15/12:
Forward P/E= 11.62
P.E.G. 5 Yr Expected= .61
Price to Sales= 1.51
Price to Book= 1.83
Cash Per share= $1.79
52 Week Range: $3.53 to $6.94 as of 10/15/12

The five year chart shows a volatile stock with no long term, sustainable upward trajectory, but with significant short term moves, both up and down: SIMG Interactive Chart

I have played SIMG once before as a LT: Bought 50 SIMG at $2.19- Lottery Ticket (July 2009)-   Sold SIMG at $3.37 (September 2009)

2009 SIMG 50 Shares +$42.55
Yesterday's Close: SIMG: 4.32 -0.02 (-0.46%)

3. Gray Television Notice of Bond Redemption:  Gray Television announced that it will be redeeming the remainder of its 2015 senior secured bonds at 107.875 plus accrued and unpaid interest to the redemption date.

GRAY Redemption 
I own 1 of these bonds. Bought 1 Gray Television 10.5% Second Lien Bond Maturing 6/29/2015 at 95 (November 2011). I will realized over a 10% profit on the bond plus about 1 year of interest.

4. Continued Downdraft in Mortgage REITs: Mortgage REITs have experienced a downdraft in their stock prices this month, which accelerated yesterday. The most significant concern is the impact of prepayments on the net interest spread. Morgan Stanley downgraded several Mortgage REITs earlier this month. Yesterday,  Barrons highlighted the prepayment issue in the Current Yield column.

Annaly (own 100) hit a new 52 week low yesterday, hitting $15.27 intra-day: NLY: 15.57 -0.47 (-2.93%)

Other Mortgage REITs Yesterday:

ARR: 6.90 -0.30 (-4.17%) : ARMOUR Residential REIT (own 150)
AGNC: 32.00 -0.59 (-1.81%) : American Capital Agency (owned and Sold)
MFA: 7.96 -0.20 (-2.45%) : MFA Financial (own 100)
CYS: 13.02 -0.25 (-1.88%) : CYS Investments (owned and sold)

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