Monday, February 24, 2014

Update for Lottery Ticket and Regional Bank Basket Strategies/Sold: 300 CPST at $1.55, 200 CIDM at $3, 50 VSB at $5.88 and 50 STKL at $9/Sold 100 MNRK at $11.5/Bought 50 ZAGG

The Lottery Ticket and Regional Bank Basket strategies are normally updated on the last Monday of each month. The following two tables will have closing prices from the previous Friday.

Last Update: Stocks, Bonds & Politics: Vix Asset Allocation Model and the 1997 Asian Contagion/Update for Regional Bank and Lottery Ticket Basket Strategies/Sold 50 UNB at $24.56/Bought as LT: 15 SQM at $27.74/FNFG/CBU, TRST, WTBA, HBAN, FNB, NPBC

The regular weekly post will be published tomorrow.

Closing Prices Last Friday 2/24/14:
KRE: $38.15 +0.31 (+0.82%) : SPDR S&P Regional Banking ETF
VIX: 14.68 -0.11 (-0.74%) 
1. Update of 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.

See 2004 Study by the Brandes Institute: "Falling Knives Around the World" 

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. I spend anywhere from thirty minutes to an hour researching a potential purchase prior to purchase.

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. My total exposure is currently slightly under $6,000.

The name of the strategy aptly describes the risk. It is somewhat analogous in many cases to playing a hand of blackjack for the purchase amount knowing that the card count favors the house. It is a form of entertainment and an alternative to a casino visit. Based on the results to date, this strategy is far more likely to produce positive results even with the LB's skill at the tables. The primary purpose of the LT strategy is to entertain Right Brain, let it swing for the fences with up to $300, and to keep the Nit Wit from interfering with Left Brain's management of Headknocker's portfolio.

Snapshots of realized gains can be found at the end of the Gateway Post on this topic: Stocks, Bonds & Politics: Lottery Ticket Strategy: New Gateway Post

There were several deletions since the last update and one addition, all discussed below.

Net Realized Gains: $14,159.98 

Click to Enlarge:

As discussed below, I sold 3 of my largest percentage gainers since the last update: CIDM, STKL, and CPST.

The remaining positions with unrealized gains over 30% are as follows:

AMOT +90.61%
FCE/A +64.63%
ING +59.37%
The market reacted positively to ING's last earnings report: FORM 6-K

AWC +33.67%
AWC is a an new entrant in this list: Alumina Limited (ADR) (AWC) Q4 2013 - Earnings Conference Call - Seeking Alpha

FCF +31.43%
ELON came back to earth after reporting another loss: Echelon Reports Fourth Quarter 2013 Results

A. Sold 50 VantageSouth Bancshares (VSB) at $5.88 (See Disclaimer): VantageSouth agreed to be acquired by Yadkin Financial (YDKN). If approved by shareholders, VSB shareholders will receive .3125 shares of YDKN for each VSB share.

The shares of both VSB and Yadkin rose on this announcement:

Closing Prices Day of Announcement: Monday 1/27/14:

VSB: 5.75 +0.61 (+11.87%)
YDKN: 18.48 +1.17 (+6.76%)

As of 1/27/14, the consensus 201 E.P.S. estimate was $1.26 for Yadkin. YDKN Analyst Estimates

I decided to sell my shares for a small profit:

Sold 50 VSB at $5.88
Since the gain was less than $30, I will not make a snapshot, nor will the profit be included in the running total for this basket.

Bought 50 VSB at $5.17-LT Basket (10/28/13 Post)

B. Sold 50 STKL at $9 (see Disclaimer):

Snapshot of Trade:

2014 Sold 50 STKL at $9
Snapshot of Profit: 

2014 STKL 50 Shares +$141.6
Lottery Ticket Buys: 50 STKL at $5.85 (12/31/2012)

As noted in that post, I have repeatedly traded this one and have netted so far $1,229.67 in realized gains (prior trade snapshots are in the prior linked post) I have bought the stock as low as $1.65.

I have grown weary with Sunopta's excuses for earnings mishaps. There always seems to be some unusual reason for an earnings disappointment. Possibly, the company is just snakebit or maybe there needs to be a housecleaning in the executive suite. As I have said in the past, this company may have some potential when and if it can ever manage to grow earnings and free cash flow in a consistent fashion. I have not yet seen any evidence that the current managers are capable of doing so.

The last mishap is explained in this press release: SunOpta Announces Preliminary Fourth Quarter Revenue and Earnings Results

Even though I am more than fed up with this company, I will buy shares again at the right price. My last purchase was at $5.85.

C. Sold 300 CPST at $1.55 (see Disclaimer): I just got tired of waiting for CPST to quit burning cash and to produce a steady stream of earnings. News releases announcing new orders are fine, but where are the profits?

Snapshot of Trade:

2014 Sold 300 CPST at $1.55

Snapshot of Profit:

2014 CPST 300 Shares +$153.51
Bought 300 CPST at $.9852-LT Category

I decided to sell these shares after reading the fiscal 3rd quarter "earnings" report. Capstone Turbine Announces Third Quarter Fiscal Year 2014 Operating Results CPST reported another net loss of $2.2M and used $3.8M of cash in operating activities.

While the profit was only $153.51, that amount represents a 50.58% return on the total amount invested in shares including commissions.

D. Sold 200 CIDM at $3 (see Disclaimer):

Snapshot of Trade:

2014 Sold 200 CIDM at $3
Snapshot of Profit:

2014 Sold 200 CIDM +$283.13
Best not to be greedy, at least most of the time. I realized almost a 100% gain in this one. I sold just before the earnings report release date. I did not want to risk any part of that gain due to an unfavorable report.

Cinedigm reported a net loss of $10.471M for its third fiscal quarter or $.17 per share. The loss from "continuing operations" was $.05 per share.

Earnings Call Transcript - Seeking Alpha

Bought LT Basket: 100 CIDM at $1.55; Added 100 CIDM at $1.38

E. Bought 50 ZAGG at $4.22 (See Disclaimer):

Snapshot of Trade:

2014 Bought 50 ZAGG at $4.22
This one was added to my Lotto monitor list several months ago after it appeared on a screen searching for stocks selling in the single digits with a Price to Sales ratio and Price to Book less than 1.5. Stocks, Bonds & Politics: How to Find Stocks Masquerading as Lottery Tickets (July 2009 Post). This selection was made entirely on the following statistical criteria:

Key Statistics Data from YF (Based on $4.22 Price)
ZAGG Key Statistics
Forward P/E 2014:  7.5
Price to Sales: .56
Price to Book: 1.03

Another characteristic of Lotto selections is a smashed stock price, which is manifested in the long term ZAGG  chart. The price peaked in 2011 at over $16, so a $4 and change number is a major haircut.

This company designs, manufactures and distributes product accessories for mobile devices.

Corporate Website: ZAGG | #1 In Mobile Accessories

I also read Seeking Alpha articles about ZAGG that were published earlier in 2014.

SEC Form 10-Q for Q/E 9/30/13

The company did report a $.1 per share profit in the 2013 third quarter on $49.9M in revenues. For the first nine months of 2013, the company claimed to have generated $25M in operating cash flow. SEC Filed Press Release

As noted in Reuter's Key Developments page, ZAGG issued a significant warning last November.

(Transcript) - Seeking Alpha Investor's Conference December 2013

Closing Price Last Friday: ZAGG: $4.22 -0.08 (-1.86%)

2. Update for Regional Bank Basket Strategy:

This strategy is explained in my Gateway Post on this topic:

Snapshots of realized gains and losses can be found in that post.

The dividend yield showed in this table is calculated by Yahoo Finance based on last Friday's close. My dividend yield for each position will be different based on my total cost numbers. In most cases, with FNFG and VLY being notable exceptions, my dividend yield will be higher.

I am not tracking reinvested dividends in the following table. The unrealized gains per holding do not include reinvested dividends.

Over the life of this basket strategy, I anticipate that the dividends will provide 40% to 50% of the total return. I am generally keeping my total exposure between $40,000 to $50,000.

I am currently about $5,000 below the lower end of that range, as shown in the table below (subtract total unrealized gain from total value shown)

As a result of profit taking over the past several months, I am currently well below my minimum $40,000 out-of-pocket investment threshold for this basket. I am not comfortable with valuations in this sector. The price declines over the past few weeks brought a few near the upper end of my fair valuation range. Hopefully, I will see a number of 10% to 20% corrections over the coming weeks that will provide far better buying opportunities in this sector. I have not been impressed with most of the 4th quarter earnings reports from regional banks. While net interest margin has not contracted much, it is yet to show any expansion either for most banks. Chart: Net Interest Margin for all U.S. Banks - St. Louis Fed

One ETF will own several of the small cap regional banks and REITs that I own now or have owned in the past: PSCF | S&P SmallCap Financials Portfolio

Net Realized Gains to Date: $15,808.58 
Dividends 2010-2013 (updated yearly only)= $6,623.72

In 2013, my dividend total from this basket totaled $1,932,93, up from $1,896.25 in 2012 and $1,660.57 in 2011. I will have to increase my current exposure significantly in order to exceed the 2013 amount this year.   

Since the last update, I added two small positions and eliminated one, which is discussed below. Bought: 50 BHLB at $24.51, 50 NBTB at $22.76

Click to Enlarge:

The largest percentage unrealized gain continues to be a 50 share lot of Washington Trust (WASH):

WASH 50 Shares +124.12%
A, Bridge Bancorp (BDGE): Bridge Bancorp reported 4th quarter core net income of $3.7M, a 9% increase Y-O-Y, or $.33 per share. The consensus estimate was for $.32 per share. Core ROA was .81%. Net interest margin was 3.25%, up from 3.24% as of 12/31/2012. The efficiency ratio was at 58.71%. Operating expenses as a percentage of average assets was 2.11%. NPL ratio remained excellent at .38%. The coverage ratio was 418.66%.

After selling my higher cost shares, I am down to 109+ shares with an average cost per share of $19.05. Item # 4 Pared BDGE Selling Highest Cost 56 Shares at $24.71

Closing Price Last Friday: BDGE: $26.60 +0.63 (+2.43%)

B. National Penn (NPBC): National Penn Bancshares repurchased 7M shares owned by Warburg Pincus for $10.77 per share. NPBC used "excess capital" to fund that purchase.

C. FirstMerit (FMER): FirstMerit reported net income of $57.2M or $.33 per share for the 2013 4th quarter. There was $7M in extraordinary expenses included in those numbers related to the acquisition of Citizens Republic Bancorp.

Net Interest Margin: 3.89%
Efficiency Ratio: 64.36%
ROA: .94% (1.02% adjusted for one time expenses)
NPA Ratio: .6%
Net Charge Offs (annualized): .13%
Coverage Ratio: 247.35%
Tangible Equity to Tangible Assets: 7.71%

Earnings Call Transcript - Seeking Alpha

After selling my 100 highest cost shares, I currently own 141+ at an average cost per share of $14.52: Item # 2 Bought 30 FMER at $11.35 (August 2011)Item # 2 Added 50 FMER at $15.2 (September 2012)Item # 3 Added 50 FMER at $15.09 (February 13, 2013 Post) The foregoing purchases account for 130 of the 141+ shares with shares purchased with dividends accounting for the remainder. I quit reinvesting the dividend based on valuation after the 2013 second quarter.

Closing Price Last Friday: FMER: $20.00 +0.11 (+0.55%)

D. New York Community Bank (NYCB): For the 2013 4th quarter, New York Community Bancorp reported non-GAAP E.P.S. of $.30 and $.27 on a GAAP basis. The non-GAAP number adds $.02 to the GAAP number for "amortization and appreciation of shares held in stock-related benefit plans" and 1 cent for "amortization of core deposits intangibles"

Net Interest Margin: 2.92% (down from 3.03% 2012 4th)
Operating Expenses as a % of Average Assets: 1.27%
Efficiency Ratio: 43.56%
Cash Efficiency Ratio: 41.88% (excludes item in stock related benefit plans)
NPL Ratio: .35% (non-covered)
Cash Return on Average Assets: 1.13%
Cash Return on Average Tangible Equity: 16.27%
Tangible Equity to Tangible Assets: 7.42
Total Risk Based Capital Ratio: 12.97% (New York Community Bank)

Earnings Call Transcript - Seeking Alpha

After booking some profits, I currently own 150 shares at a total average cost per share of $11.86.

I have not reinvested any of the dividend payments.

The board declared the 40th consecutive dividend of $.25 per share. At that rate, the dividend yield is about 8.43% at a total average cost per share of $11.86. Item # 2 Bought 50 NYB at $11.3 (10/15/2009 Post)Item # 4 Added 50 NYB at $10.57 (11/4/2009 Post)Item # 1 Added 50 NYB at $12.79 (2/17/2012 Post)

I view a dividend cut as more likely than a dividend increase.

The largest of the three gains realized to date was booked on this 50 share lot: Bought 50 NYB at $10.57-Item # 7 Sold 50 NYB in IRA at $17.51 (7/28/2010 Post)($331.03-snapshot in Gateway Post on this topic)

Closing Price Last Friday: NYCB: $15.74 +0.16 (+1.03%)

E. Washington Trust (WASH): Washington Trust reported 2013 4th quarter net income of $9.8M or $.58 per share, up from $.55 in the 2012 4th quarter.

Net Interest Margin: 3.24%
NPL Ratio: .75%
Net Charge Offs to Average Loans Annualized: .27% (for the year)
ROA: 1.24%
Return on Average Tangible Assets: 1.26%
Return on Average Tangible Equity: 14.8%
ROAE: 11/98%
Tangible Equity to Tangible Assets: 8.51% (up from 7.69% 12/31/12)
Total Risk Based Capital Ratio: 13.29%

Earnings Call Transcript - Seeking Alpha

I currently own 50 shares, part of a 100 share lot bought bought in January 2010. I have booked a $347.03 on the other 50 shares.

Bought 100 WASH at $15.26 (January 2010)-Sold 50 of 100 WASH @ $22.44 (January 2011)

F. Merchants Bankshares (MBVT): Merchants Bancshares reported net income of 3.84M for the 2013 4th quarter or $.61 per share, unchanged from the 2012 4th quarter.

Net Interest Margin: 3.1%
Efficiency Ratio: 66.2%
NPL Ratio: .08% (lowest in my basket)
NPA Ratio: .06% (lowest in my basket)
ROA: .91%
ROE: 13.08%
Total Risk Based Capital Ratio: 16.12%

The 2013 4th quarter included a gain of $898 thousand resulting from the sale of a branch. Another gain of $934 will be deferred and amortized over a ten year period since the bank is leasing back a portion of the property.

The Board declared the regular $.28 per share quarterly dividend that went ex dividend on 2/4/14.

These small banks are finding it increasingly difficult to grow earnings without a significant expansion in their net interest margins.

After harvesting a profit on one 50 share lot, I currently own 50 shares of MBVT: Item # 5  Bought 50 MBVT at $26.25 (5/2/2012)

Closing Price Last Friday: MBVT: $32.51 +0.13 (+0.40%)

G. Sold 100 MNRK at $11.5 (see Disclaimer): I have not been impressed with the bank's recent earnings report. And, it is the second lowest yielding bank in my basket even after some recent dividend increases. I consequently decided to harvest for the second time my profit:

Snapshot of Trade:

Snapshot of Profit:

2014 MNRK 100 Shares +$163.5 ($108.08ST on 80 Shares/$55.42 LT on 20)
Bought 80 MNRK at $9.97 (April 2013)

The preceding transaction included a 20 share lot which was part of a stock split originating from the following purchase and was consequently classified as long term capital gain:

2013 MNRK 100 Shares +$186.06
Sold: 100 MNRK at $10.59 (March 2013)-Added Regional Bank Basket:  120 MNRK at $8.65 (December 2012)(bought 100 and late received 20 shares due to a 6 for 5 split)

Total Realized Gains: $349.56

Closing Price Last Friday: MNRK: $11.69 +0.27 (+2.36%) 

No comments:

Post a Comment