Wednesday, October 17, 2012

CPI/Sold 50 of 100 GOV at $24.5/KO IBM/Bought 100 of the CEF CGI:CA at 15.78 CAD-Toronto Exchange

Vale is ex dividend today for its $.58855 per share special dividend. (yesterday's close: VALE: 18.77 +0.40

Consumer price inflation increased by .6% in September, seasonally adjusted, and 2% over the year year on a non-seasonally adjusted basis. Consumer Price Index Summary Gasoline prices rose 7% in September after increasing 8% in August. At the rate, I may need to put a mortgage on my home to buy gas. The core index, which excludes food and energy, was up .1%.

Regional bank stocks bucked the uptrend yesterday. The regional bank ETFs declined yesterday: KRE: 27.77 -0.47 (-1.66%) and IAT: 24.90 -0.39 (-1.54%) My regional bank basket declined .78% with only five gainers. I believe that investors are becoming concerned about the negative impact of net interest margin compression on earnings growth, while overlooking many positives. REGIONAL BANK BASKET STRATEGY GATEWAY POST

Bloomberg interviewed the new co-CEO of Annaly Capital, Wellington Denahan-Norris, who noted that there was an "incredible mispricing of risk that's being delivered" by academics at the world's central banks. She acknowledged the refinancing issue by saying that it "will be pretty severe". Who could argue that a 30 year mortgage on an American home at 3.39%, immediately after the worse housing bubble in American history, represents a fundamental mispricing of the risk? ( 30 year average rate as of 10/11/12 Primary Mortgage Market Survey (PMMS) - Freddie Mac)  I certainly would not want to be a lender at that rate.

Barron's summarizes a report from Credit Suisse on Mortgage REITs. That firm favors hybrid over agency only REITs and recommends MTGE, IVR, and AMTG.

‎IBM had a disappointing report. Revenues declined 5% to $24.7 billion, missing the consensus estimate of $25.4B. The systems and technology unit reported a 13% decline in revenues to $3.9B. Software revenues declined by 1%. Service  revenues were down 5% (flat adjusting for currency). Adjusting for the negative currency impact, sales still fell by 2%. GAAP diluted E.P.S. was $3.33 ($3.44 excluding a charge). IBM nonetheless reaffirmed adjusted E.P.S. of at least $15.1 for 2012.  

1 Sold 50 of 100 GOV at $24.5 on Monday-ROTH IRA (see Disclaimer): In an article published by  Seeking Alpha, the author attempted to calculate the net asset value per share of GOV's properties and came up with a $24 per share number. He also argued that the management issues with GOV warranted a discount to net asset value. This REIT is not internally managed and has the same management company as Commonwealth REIT, the REIT Management & Research, L.L.C. controlled by Barry Portnoy and his son Adam Portnoy.

After reviewing that article, I decided to pare my GOV position by selling 50 of my 100 shares.  Another reason for paring the position is to harvest a quick 10+% gain in those shares. This is a snapshot of this position shortly before I sold the stock:

2012 GOV ROTH IRA Bought 8/3/12/Total Cost Per Share=$21.92
Item # 4 Bought Back 50 GOV at $21.78 Roth IRA (August 2012). This is a snapshot of the realized gain:

2012 GOV 50 Shares (10/15) +$121.97 
After the bell on 10/15/12, Government Properties Income Trust announced a public offering of 7 million shares, with an over allotment option of up to 1,050,000 million shares. Prospectus The offering was priced at $23.25 per share yesterday morning with 7.5 million shares sold. The over allotment option was increased to 1,125,000 shares. Government Properties Income Trust Prices Offering of 7,500,000 Common Shares

This REIT announced another share offering in July 2011 when the shares last traded at $26.37:  Prospectus The company sold 6.5M shares at $25.4 on 7/24/11. Immediately thereafter, the stock price started to slide and hit $20.71 on 8/8/11. GOV Historical Prices By mid-June 2012, the shares were trading near $21: GOV Historical Prices

I will consider buying back these 50 shares below $22. GOV will go ex dividend on 10/18/12 for its $.43 quarterly distribution. It would not be surprising to see the shares float below $22 soon after that ex dividend date.  

The remaining 50 shares, held in a taxable account, have a total average cost of $21.38 and were acquired in June 2012. I will probably hold those shares for at least one year.

Yesterday's Close: GOV: 23.00 -1.35 (-5.54%) That drop was entirely due to the share offering in my opinion.

2. Coca Cola (own 265+): Coca Cola reported GAAP earnings of 50 cents per share (51 cents excluding items), compared to GAAP 48 cents in the year ago quarter. 2012 Q3 Earnings Release Volume growth for the quarter was reported at 4% (+2% in North America). Volume increased 15% in India. Volume increased only 2% in China. Latin America volume increased by 5%.

Revenues and income for the quarter were significantly impacted by currency headwinds. Currency represented a 5% headwind on revenues and 7% on net income.

My average cost per share is $25.41.

KO Average Cost Per Share=$25.41
My last dividend reinvestment was in the 2010 4th quarter which indicates that I am not a buyer at current prices. My last open market purchase was in April 2010. My lowest cost purchase was made at a split adjusted total cost of $19.49.

KO: 37.90 -0.23 (-0.60%)

3. Bought 100 of the Closed End Fund Canadian General Investments at $15.78 CADs Yesterday (Canadian Dollar (CAD) Strategy)(see Disclaimer): This is my first purchase of a Canadian closed end fund. What caught my eye was the large discount to net asset value. On 10/16/12, the fund reported a net asset value per share of CAD $22.42 per share. (Sponsor's website: Morgan Meighen & Associates).  Based on the $22.42 net asset value and a $15.78 price, the discount to net asset value would be 29.62%. The sponsor's webpage shows a 10+% annual average return over the past ten years through 9/30/12.

The fund does use leverage in the form of CAD $150M in $25 par value preferred stocks (Series B and C), which are also publicly traded on the Toronto exchange.  Canadian General Investments Ltd. 4.65% Pfd., CGI.PBCanadian General Investments Ltd. 3.9% Pfd. Cl A, CGI.PC.

The expense ratio, excluding the leverage cost, is high at 1.6%.

I took a snapshot of the top ten holdings as of 10/5/12:



This is a link to the last shareholder report for the period ending 6/30/12: 2012_CGI_Q2.pdf At page 14 of that report, the fund shows slightly over $200M in unrealized gains as of 6/30/12. The cost and value for each investment is set forth in the report. Most of the holdings are Canadian companies but the fund owns a few U.S. firms.

The top holding, Catamaran (CTRX), is a U.S. based company, formerly known as SXC Health Solutions. 

I was unfamiliar with DOLLARAMA (TSX: DOL), so I checked it out. It appears to be the Canadian version of Family Dollar and Dollar General. Dollarama announces strong second quarter results

Another top holding Labrador Iron Ore Royalty Corporation explains itself with its name. 

This CEF is lightly traded and I used a limit order. I used existing Canadian dollars to pay for this purchase.


The symbol used at Fidelity is CGI:CA.

Yesterday's Close: CGI.TO: 15.80 +0.05 (+0.32%)
Volume 3,122 shares

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