Friday, October 19, 2012

Sold 50 LIT at $15.1/Earnings: SVU, GOOG, HBAN, KEY, PBCT/

The Philly Fed manufacturing index rose to +5.7 from -1.9 in September.

China reported that its third quarter GDP growth at 7.4%, the lowest level since early 2009.

A draft of Google's third quarter results were accidentally filed with the SEC during the trading day. CNBC The results badly missed expectations. SEC Filed Press Release I have no position. GAAP E.P.S. was reported at $6.53, down from $8.33 in the 2011 third quarter. Non-GAAP E.P.S. for the 2012 third quarter was $9.03, down from $9.72, and considerably below the consensus estimate of $10.65. Excluding traffic acquisition costs, revenues were $11.3B, below the consensus estimate of $11.86B. The shares tanked after the release. Shares spiked down $68.19 before trading was halted in the early afternoon and ended the day at $695.00 -60.49 (-8.01%). Given this report, I would not consider paying anywhere near $695 for these shares. Google shares are still up considerably from a $570+ close on 7/12/12, suggesting that institutional investors really had no clue: GOOG Interactive Chart (and see Earnings Call Transcript - Seeking Alpha). The final press release, which added a quote from Larry Page, was later filed with the SEC. Press Release

The earnings releases from IBM and Google will cause me to postpone an odd lot purchase of the technology ETF XLK. I may wait to see whether it pierces $28 on the downside. (one year chart: XLK). I currently have no position, but I do own 150 shares of TDIV which does not include non-dividend paying tech stocks such as Google.

The Google release also caused some knee jerk selling by the OG which will be discussed in the next post. Another reason for the recent selling is a gut feeling that the market is overbought and in need of a pullback and consolidation. The S & P 500 closed yesterday at 1,457.34, up 14% since 6/1/12 and 32.58% since 10/3/11. S&P 500 Index Chart

Susquehanna Bancshares announced a 1 cent increase in its quarterly dividend to 7 cents per share. I am waiting to review the third quarter results before making a decision to promote this stock from the Lottery Ticket Basket Strategy to the Regional Bank Basket Strategy. Bought 30 SUSQ at $8.75 (brief mention in introduction).

1. Sold Remaining 50 Shares of LIT at $15.1 on Wednesday (The $500 to $1,000 Flyers Basket Strategy)(see Disclaimer): This Global X Lithium ETF was demoted to the Flyers Basket Strategy based on its significant exposure to several low priced stocks like A123 Systems (AONE) which just declared for bankruptcy. Item # 3 Sold 50 of 100 LIT at $14.74 I counted several stocks selling for less than $1, and I previously noted AONE as a problem when I initiated a position. AONE then had a 3.69% weighting: Item # 7 Bought 100 of the Stock ETF LIT at $13.72

The AONE shares were still owned by the fund as of 10/17/12:

LIT Holdings as of 10/17/12
The AONE weighting is now .06% due to the price decline. I decided not to wait and see whether another one of the small company holdings follows AONE's path.

2012 LIT 50 Shares (10/17 sale) +$57.07
I will wait for a pullback in either Rockwood Holdings or Sociedad Quimica y Minera S.A.  rather than own this ETF. At most, I would buy 50 shares of one or the other. The entire stock market appears to me to be overbought now. My preference would be ROC at below $45.

Yesterday's Close: LIT: 15.14 0.00 (+0.02%) 

2. HBAN (own: Regional Bank Basket Strategy)Huntington Bancshares reported third quarter net income of $167.8 million or 19 cents per share, up from $.16 in the 2011 third quarter.  The consensus estimate was for 17 cents per share. While that appeared to be a two cent beat, the latest quarter included a deferred tax valuation benefit (don't ask) of $19.5M or about two cents a share. The bank repurchased 3.7M shares during the quarter at an average cost of $6.68 per share.

Commercial loans rose 18%. Core deposits grew 9%.

As of 9/30/12, net interest margin was at 3.38%; non-performing loans to total loans stood at 1.11%; the  allowance for loan and lease losses as a percentage of total nonaccrual loans leases was 189%; the tangible common equity to tangible assets ratio was 8.74% ( up from 8.33% on 3/31/12); the total risk based capital ratio was 14.36%; tangible book value was $5.71 per share; and the bank had a 1.19% return on average assets during the quarter. SEC Filed Exhibit to Press Release

Earnings Call Transcript - Seeking Alpha

The market reacted negatively to the report, sending the shares below my average cost per share. Most likely, I will average down in the $6 to $6.25 range with another odd lot purchase. 

Yesterday's Close: HBAN: 6.61 -0.44 (-6.24%) That drop seems unwarranted to me.

3. KEY (own: Regional Bank Basket Strategy)KeyCorp reported third quarter net income of $214M or 23 cents per share. The consensus estimate was for 21 cents per share. 

As of 9/30/12, net interest margin was 3.23% (up from 3.09% in the 2011 3rd quarter); the cash efficiency ratio was 64.62%; the tier 1 common equity ratio was 11.43%; the tangible common equity to tangible assets ratio was 10.39%; the total risk-based capital ratio was 15.33%; NPLs to total loans stood at 1.27%; the coverage ratio was 135.99%; tangible book value was $9.54 per share; and the return on average assets was 1.08% during the quarter.

The bank ended the quarter with 1,087 branches. The bank repurchased 9.6M shares and redeemed $707M of trust preferred securities.

A good discussion of this report can be found TheStreet.

Both HBAN and KEY recently received promotions to the regional bank basket strategy from the Lottery Ticket Basket Strategy.

The market reacted positively to this report.

Yesterday's Close: KEY: 8.78 +0.37 (+4.40%)

4. SVU (own 3 senior bonds: Junk Bond Ladder Strategy): For its second fiscal quarter, SUPERVALU reported a break-even quarter excluding predominantly non-cash charges of $.52 per share. Revenues declined to $8.04B from $8.5B in the year ago quarter. The consensus estimate was for $.13 on $8.01B in revenues. The company claimed EBITDA of $1.65 for the quarter, excluding those charges and still anticipates a  debt reduction of $400 to $450M for the 2013 F/Y. Cash flow from operations and asset sales is expected to be $900 to $950M for the 2013 F/Y. 

In response to SVU's review of "strategic alternatives", the company has received "a number of indications of interest and is in active dialogue with several parties". The pricing of the common shares does not currently indicate a favorable outcome. Yesterday's Close: SVU: 2.14 +0.10 (+4.90%) and see
five year SVU Interactive Chart.

This report is discussed in articles published by the WSJBloomberg and Reuters.

Normally, I would increase my personal risk rating for bonds after reviewing this kind of report. Until I know more about the outcome of the "strategic" review, I am reluctant to make a change. Instead, I will change the overall outlook to negative for a possible one to two notch downgrade from the current 7+ rating on the long bonds. Personal Risk Ratings For Junk Bonds
The 8.7% 2030 bond, originally issued by Albertsons, closed yesterday at 58.125, hardly reassuring, a price that is not consistent with the Caa1 rating by Moody's and a B- by S & P. The market is far more pessimistic than the ratings agencies. For example, a 7% Wendy's 2025 bond is rated B- and closed near its par value yesterday. A 7.05% ColumbiaHCA 2027 bond is similarly rated at B- and trading near 95.  I would pay attention to the market's disagreement with the rating agencies.

5. Peoples United (own: Regional Bank Basket Strategy): PBCT reported after the bell yesterday. People's United Financial reported third quarter net income of $62.2M or 18 cents per share. Operating earnings were $64.4M or 19 cents per share. The consensus estimate was for 19 cents per share. The Board declared the regular quarterly dividend of 16 cents per share. People's United Bank - Investor Relations - Dividend History

As of 9/30/12, the operating net interest margin was 3.89%; the efficiency ratio was 61.4%; the tangible equity to tangible assets ratio was 11.2%; the total risk-based capital ratio was 15.6% (holding company & 14.1% for the bank); tangible book value per share was $8.77; and the operating return on average assets was .91%.

During the quarter, the bank repurchased 4.5M shares at a total cost of $54M.  PBCT has a network of 417 branches in New England. 

Yesterday's Close: PBCT: 12.05 +0.07 (+0.58%) At a total cost of $12.05, and assuming a continuation of the 16 cent per share quarterly dividend, the yield would be about 5.3%, one of the reasons for its recent addition to the regional bank basket strategy:  Bought 100 PBCT at $11.47

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