Monday, February 25, 2013

Updated Tables Regional Bank Basket Strategy and Lottery Ticket Basket Strategy/Lottery Ticket Sales: 50 TTI at $9.97, 50 RRST at $7.78, 30 SMA at $10.81, 40 BRKS at $9.71/Bought 50 BANC at $11.3

I am updating the tables for the Lottery Ticket Basket Strategy and the Regional Bank Basket Strategy on the last Monday of each month. The prices shown in the tables will be the closing prices from last Friday.  

My basket strategies will have a large number of securities in them. The focus is on the overall return of the basket rather than on any component.

The last table update for these baskets can be found at Updated Tables Regional Bank Basket Strategy and Lottery Ticket Basket Strategy (1/28/13 Post)

1. Update for Lottery Ticket Basket Strategy: The Lottery Ticket Basket Strategy uses a deep contrarian value strategy, appropriately characterized as catching a "falling knife". A common criteria for the stocks contained in this basket is a smashed stock price at the time of purchase and an ugly looking chart. Any technical analyst would most likely have a sell rating on the stock.

Selections are made primarily on statistical criteria including price to book, price to sales, forward P/E, cash per share and/or free cash flow. For many selections, I may be pessimistic about the firm's future, but not as pessimistic as the market. I will also occasionally see a ray of light at the end of a dark tunnel. Since I expect failures, which are inevitable and unavoidable in this kind of approach, I limit my exposure to $300 per stock plus any prior trading profits. 

After experiencing some success with this strategy, I now have a requirement that my total investment in all LT holdings can not exceed my total realized gains for this basket strategy.

Realized Gains: $12,022.36 
Total Current Investment (37 stocks)= $7,542.71

Trade Snapshots are at the end of the Gateway Post: Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

Lottery Ticket Basket as of 2/22/13

For the most part, Headknocker would have been better off holding the LT's sold over the past month.

The Old Geezer noted that the "RB, who runs the LT strategy, was better at entry than exit points".

RB quickly retorted that it was the OG who sold the LTs mentioned below, though due all of his mind mush memory and other old age issues and afflictions, being of course well past his prime,  he may no longer remember his culpability in interfering with RB's LT strategy".

Headknocker noted that all staff members here at HQ thanked the Lord every morning that the OG remembers to put on his pants before retrieving the morning papers.

A. SOLD  40 BRKS at $9.71 (see Disclaimer): This LT was bought on 10/4/12. Bought 40 BRKS at $7.23-LT Category After briefly reviewing the earnings report, where Brooks reported a better than expected loss, I was sufficiently unimpressed that I elected to harvest my close to 30% gain:

2013 BRKS 40 Shares $83.29

This completes my second round trip in Brooks' common stock, purchased only as part of the LT basket strategy.

Bought BRKS at 8.62 as LT-Sold LT BRKS at $10.2 (May 2010).

Link to Earnings Report: SEC Filed Press ReleaseForm 10-Q

Closing Price 2/22/13: BRKS: 10.19 +0.07 (+0.69%)

B. Xinyuan Real Estate (own): XIN was one of the largest percentage gainers on the NYSE on 2/7/13: XIN: 4.18 +0.42 (+11.17%). I did not see any news other than a raise in the quarterly dividend from 4 cents to 5 cents per share. Xinyuan Real Estate Co., Ltd. Announces Fourth Quarterly Dividend Payment for 2012 -- BEIJING

Bought 50 XIN at $2.57-LTAdded 50 to LT XIN at $2.36

Closing Price 2/22/13: XIN: $4.47 +0.10 (+2.29%)

C. Sold 50 Tetra Technologies at $9.97 (see Disclaimer): Tetra announced estimated 4th quarter earnings of $.18 to $20 and $.75 to $.85 for 2013, excluding charges. SEC Filed News Release. The consensus estimate for 2013 was for 82 cents per share, up from 61 cents in 2012. The 2012 4th quarter estimate was for 17 cents per share. TTI Analyst Estimates

2013 Sold 50 TTI Realized Gain +$140.89

When the profit on this one exceeded 50%, I decided to reap it. The shares were purchased in October 2012. Bought 50 TTI at $5.98 (10/16/12 Post)

TETRA Technologies

Closing Price 2/7/13: TTI: 9.18 +0.34 (+3.85%)/ Volume 1.06+M Shares, Avg. Vol. 651,164

Closing Price 2/22/13: TTI: 9.22 +0.06 (+0.66%)

D. Sold 50 RRST at $7.78 (see Disclaimer):  When this one came close to a 100% gain with the recent annual dividend payment, I decided to harvest the gain which was short term. The consensus 2013 estimate was for an E.P.S. of $.49, up from $.44 for 2012. RRST Analyst Estimates

2013 RRST 50 Shares +$175.59
Bought 50 RRST at $3.95-LT Category

Closing Price 2/22/13: RRST: 8.17 -0.08 (-0.97%)

E. Sold 30 SMS at $10.81 (see Disclaimer): I decided to unload this one after reviewing a press release relating to a serious ($60M) inventory adjustment in Sims U.K. operation. SEC Filed Press Release

2013 Sold 30 SMS  +$30.59
Bought 30 SMS at $9.26

Closing Price 2/22/13: SMS: $11.60 +$.91 (8.51%)

F. Datalink (own): DTLK beat estimates by 8 cents and guided first quarter revenues up. Datalink reported a non-GAAP E.P.S. of 31 cents per share, up from 24 cents, on a 28% increase in revenues to $147.3M.

Earnings Call Transcript - Seeking Alpha

Closing Price on 2/15/13 after earnings announcement: DTLK: $9.87 +0.60 (+6.47%)

Bought 35 DTLK at $7.49-LT Category

Closing Price 2/22/13: DTLK: $10.13 +0.10 (+1.00%)

2. Update for Regional Bank Basket Strategy:  This strategy is explained in the following post:


I am not tracking reinvested dividends in this table. The dividend yield shown in the table is calculated by Yahoo Finance and is based on last Friday's close.  

Regional Bank Basket as of 2/22/13

Realized Gains: +$9,921.43
Dividends 2010-2012: $4,690.79

A. United Bankshares (own): United Bankshares announced that it would acquire Virginia Commerce Bancorp (VCBI) which is headquartered in Arlington, Virginia. VCBI has 28 branches in Northern Virginia. Its acquisition represents a continued expansion of UBSI's footprint in the greater Washington, D.C. market. UBSI is headquartered in Charleston, West Virginia. 

UBSI will be exchanging .5442 of its shares of each VCBI share. 

I previously owned shares in VCBI as a Lottery Ticket: Bought 40 VCBI as LT at $5.56 (March 2011)- Sold 40 VCBI at 7.64 (January 2012). Needless to say, I sold those 40 shares too soon. 

VCBI recently was able to repurchase the government's TARP preferred stock. 

2012 4th Quarter VCBI:
Adjusted E.P.S. $.16
Net Interest Margin: 3.73% 
Efficiency Ratio=56.37%
Coverage ratio=112.77%
NPA Ratio=1.78%
Return on Average Assets: 1.03%
Return on Average Equity: 10.02%
Tangible Common Equity Ratio=8.69%
Total Capital Ratio (bank)=14.08%

I have been keeping UBSI primarily for its dividend yield at my constant cost number. I bought 50 shares at $16.56. Bought 50 of UBSI (November 2009). The bank has slightly raised that dividend since my purchase. Dividend History The current quarterly rate is $.31 per share. At a total cost of $16.56, the dividend yield at that rate would be about 7.49%. 

The dividend payout ratio is high and recent earnings growth has been slow. For the 2012 4th quarter, UBSI reported an E.P.S. of $.42, up from $.4 in the 2011 4th quarter. For 2012, E.P.S. was reported at $1.64, up from $1.61 in the year ago quarter. Net income growth was higher at 9% Y-O-Y ($82.6M vs. $75.6M). The share count was higher by about 3.46M shares. 
I view this fit as a good one for United Bankshares. With this acquisition, United will have the 8th largest deposit market share in the greater D.C. market. Overall, this acquisition will make me more inclined to keep UBSI shares. 

Day of Announcement (1/30/13):
UBSI: 25.14 -0.69 (-2.67%)
VCBI: 12.86 +0.65 (+5.32%)

Closing Price 2/22/13: UBSI: $26.15 +0.22 (+0.85%)

B. Washington Trust (own): This bank has been doing well since my purchase:

Washington Trust Announces Record Earnings for Fourth Quarter
4th Quarter 2012:
Net Income: $9.023M, up from $7.777M
E.P.S. $.55, up from $.48
Net Interest Margin: 3.28%
Return on Average Tangible Assets: 1.21%
Return on Average Tangible Equity: 15.29%
Tangible Equity to Tangible Assets: 7.69%
Total Risk-Based Capital Ratio: 13.26%
Non-accruing Loans to total loans=.98%
2012 Increase in Loans over 2011=7% (11% commercial)
2012 Increase in Deposits over 2011= 9%

I currently own 50 shares, part of the 100 share lot bought in January 2010.

Bought 100 WASH at $15.26 (January 2010)-Sold 50 of 100 WASH @ $22.44

Closing Price 2/22/13: WASH: $26.49 +$.35 (1.34%)

C.  Bought 50 BANC at $11.3 (see Disclaimer): This purchase was made in a satellite taxable account.

2013 Bought 50 BANC at $11.3

The expansion of the bank since November 2010 has been largely in the Los Angeles metropolitan area. A map showing the branches can be found in this SEC Filed Investor Presentation.

Back in August 2012, First PacTrust announced that it would acquire The Private Bank of California for approximately $50 million. First PacTrust Bancorp to Acquire The Private Bank of California The Private Bank of California has three branches in Hollywood, Irvine and Century City.

When reviewing this bank's earnings history, I did not like the operating results from the Near Depression period. The bank lost money in 2008, 2009, and 2011 (page 45). Non-performing assets spiked in 2008 to 4.33% of total assets from 1.82% in 2007, and then rose to 5.8% in 2009. That is just unacceptable, though understandable given the bank's market.

A long term chart reveals a steady upward trajectory between 2002 and 2006, as the stock moved from around $13 to a top over $30, followed by a water slide movement that bottomed at around $5 in late 2009. Between 2012 to date, the stock has mostly drifted in a channel between $10 and $12. BANC Interactive Chart

I decided to invest after the NPA's to total assets shrank to below 2% and earnings started to pick up.  The bank has used the recession to expand its operations into the Los Angeles metropolitan market. As of 9/30/12, the NPA ratio was at 1.49% (page 57:  Form 10-Q)

The capital ratios are good:

Capital Ratios as of 9/30/12
Page 66: Form 10-Q

The bank was increasing its dividend at a rapid rate from 2003 to 2007, going from a $.05 per share quarterly rate in 2003 first quarter to $.185 by June 2007. Then, as one would expect given the earnings numbers and acceleration in bad loans, the dividend was cut back to 5 cents in 2009. The bank started to raise the dividend again in the 2011 first quarter and is currently paying $.12 per share. Bancorp - Investor Relations - Dividends

So, the dividend rate is in no way "safe". At the current rate, the yield would be about 4.25% at a total cost of $11.3.

I also recently bought a BANC senior exchange traded bond. Item # 6 Bought Roth IRA: 50 BANCL at $25.20Prospectus.

Closing Price 2/22/13: BANC: $11.16 -.01

D. Monarch Financial Holdings (own): MNRK had an unusually good 4th quarter earnings report that sent the stock up over 7%:

Closing Price 1/31/13: MNRK: $9.36 +0.65 (+7.46%)

Monarch Financial 2012 4th Quarter:
Net Income: $3.768+M, up from $1.564+M
Diluted E.P.S.:  $.37 up from $.19
Net Interest Margin=4.07%
Efficiency Ratio (bank)=54.5%
Coverage Ratio=300%
NPA Ratio= .3%
Charge Offs to Average Loans=.08%
Return on Average Assets=1.28%
Return on Average Equity=17.51%
Tangible Book Value Per Share=$8.68
Total Risk Based Capital Ratio (bank)=12.73%

Last Thursday, Monarch announced the forced conversion of its preferred stock into common shares. Each share of the $25 par value preferred stock will be converted into 3.75 common shares. There will be a maximum of 1,160,055 shares of common stock issued as a result of this conversion. As of 12/31/12, there were 7,980,259 shares basic shares outstanding. This announcement caused a downdraft in the common share price on 2/21/13: MNRK: $9.73 -0.40 (-3.95%)

I was not very familiar with Monarch's exchange traded convertible preferred stock (MNRKP), but it certainly worked out for those who bought it at or near par value. That security paid a 7.8% coupon,  Prospectus, and will generate a good profit on conversion for any owner wishing to cash out. Given the high coupon, and the non-deductibility of equity preferred stock dividends, I am just glad that Monarch is getting rid of this security, though I would have much preferred a non-convertible feature as a common stockholder.  

Bought  120 MNRK at $8.65 (12/31/12 Post)
Five Year Chart: MNRK Interactive Chart

Closing Price 2/22/13: MNRK: $9.79 +0.06 (+0.62%)

E. Renasant (own): Renasant announced an agreement to acquire First M & F Corporation (FMFC), a bank holding company headquartered in Kosciusko, Mississippi and the parent company of Merchants & Farmers Bank. FMFC has 36 full service branches.

RNST will exchange .6425 of its shares for each FMFC share which would value the transaction at $118.8M or 119% of tangible book based on RNST's average 10 day price of $19.25 before the merger announcement. RNST expects the acquisition to be completed in the 2013 third quarter, subject to shareholder and regulatory approvals, and to be immediately accretive to estimated earnings.

After this merger announcement, Wunderlich upgraded RNST to buy and raised its price target to $25 from $20. Keefe, Bruyette & Woods raised RNST to outperform with a $23 price target.

I did look at the most recent FMFC earnings report.

2012 4th Quarter FMFC Earnings Report:
First M&F Corp
Net Income= $1.29M or $.14 per share, up from $.05 2011 4th
Efficiency Ratio= 74.83%
Net Charge-Offs=.46%
Tangible Common Equity to Tangible Assets=5.97%
Return on Average Assets annualized=.46%
Return on Average Equity annualized= 6.19%
Non-accruals to total loans= .75%
NPA ratio=2.13%
Total Assets Up 2.11% in 2012 to $1.602B
Deposits as of 12/31/12=$1.403B
Book Value per Share=$10.79

I did not see the capital ratios in the earnings release but found them in the last filed 10-Q for the Q/E 9/30/12:

Page 67: FMFC-2012.9.30-10Q

FMFC was trading mostly between $15 to $20 January 2003 to January 2008, and then went into a waterfall decline, bottoming in the $2 area in October 2009. FMFC Interactive Chart

Price Action Day of the Announcement (2/7/13)
RNST: 18.96 -0.48 (-2.47%)
FMFC: 11.70 +3.25 (+38.46%)

Bought 50 RNST at $14.14Bought: 50 RNST at $13.70Sold 50 RNST at $14.91Added 50 RNST at $15.85

RNST was probably my best gainer over the past month in this basket.

Closing Price 2/22/13: RNST: 22.00 +0.01 (+0.05%)

The closing price on 1/25/12, the date of the last update, was $19.06: Stocks, Bonds & Politics: Updated Tables Regional Bank Basket Strategy and Lottery Ticket Basket Strategy/Sold 30 DELL at $10.82/Added 150 TRST at $5.17/Bought 50 UNB at $19.45/MBVT, RNST, PCBK, KEY, TRMK

F. Financial Institutions (FISI): Financial Institutions announced a 12.5% increase in its quarterly dividend to 18 cents per share.

Bought 50 FISI at $15.55 (April 2012 Post)

Closing Price 2/22/13: FISI: $20.2 -.07 

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