Monday, November 17, 2014

NVS, BHLB/ AGY Bond Redemption/Bought 50 RRST at $7.4-Lotto/Added 50 FPF at $21.53-Roth IRA

For the last two weeks, the blog URL has been working, so I have started using it again for access: Stocks, Bonds & Politics

Big Picture: No change

Recent Developments: 

Berkshire Hills Bancorp was the subject of a positive article in Barron's. An analyst at Sterne Agee sees E.P.S. rising 23% over the next two years. The author also has a favorable view of BHLB's recently announced acquisition of Hampden Bank with its ten branches located in the Springfield, MASS. area. I recently pared my BHLB position by selling my highest cost shares at $25.75. I currently own 50 shares: Item # 5 Added 50 BHLB at $23.75 (7/19/14 Post) I have previously sold another 50 share lot for a $338.12 profit. Item # 2 Bought 50 BHLB AT $21.66 (3/12/12 Post)-Item # 1 Sold 50 BHLB at $28.74+ (7/13/13 Post) The article only had a slight impact on price today: BHLB: 25.67 +0.24 (+0.94%)

Novartis reported that its late stage drug "secukinumab" reduced symptoms of "ankylosing spondylitis" in more than 60% of the patients receiving the drug.About 1% of the population sufferers from this condition which is a type of arthritis that causes inflammation of the spine. Analysts believe that this drug has the potential to become a blockbuster defined as a drug with more than $1B in annual sales. WSJ

My most recent transaction was to buy 50 NVS shares: Item # 1 Bought: 50 NVS at $76.72 (12/23/13 Post) I also recently discussed in a SA Instablog how NVS fits into my dividend growth strategy: Dividend Growth Strategy: Novartis - South Gent | Seeking Alpha (10/28/14 Post)

Today's Closing Price: NVS: $94.38 +0.43 (+0.46%)

Power Corporation of Canada reported operating net earnings of C$350M for the third quarter or C$.76 per share, up from C$.51 per share in the 2013 third quarter. I bought the ordinary shares using USDs on the pink sheet exchange. Bought Back Power Corporation Of Canada at $25.81 (PWCDF) - South Gent | Seeking Alpha

PWCDF: $27.41 +0.33 (+1.21%); Toronto Listed Shares: POW.TO: C$30.90 +C$0.29 (+0.95%)

I had previously flipped this stock for less of a realized gain than I now have in an unrealized one: Item # 5 Sold 100 PWCDF at $28.83 (8/2/14 Post)-Item # 4 Bought 100 PWCDF at $27.29 (7/12/14 Post) I am concerned about the weakness in the CAD which will flow through into the pricing of PWCDF.

Japan reported that its GDP contracted an annualized 1.6% during the third quarter. The consensus estimate was for +2.25%. The 2014 second quarter GDP declined by 7.3%. The world's third biggest economy is technically in a recession again. The primary culprit in the slowdown is a significant raise in the national sales tax which went from 5% to 8% as of 4/1/14.

Industrial production declined a seasonally adjusted .1% in October. The estimate for September was revised down to +.8% from 1%. Manufacturing output increased by .2%.Output for utilities declined by .7%. Capacity utilization declined to 78.9% from 79.3%. Industrial Production and Capacity Utilization

1. Bought 50 RRST at $7.4 (Lottery Ticket Basket Strategy)(see Disclaimer):

Snapshot of Trade: 

2014 Bought 50 RRST at $7.4
Due to the profit realized in a prior trade, noted below, I was allowed to exceed the $300 maximum limit for a Lotto purchase by up to $175.59. 

Security Description: RRSat Global Communications Network Ltd. (RRST) is an Israeli company that provides global content management and distribution services to the television and radio broadcasting industries. Through satellites, fiber and internet delivery, RRST can reach 95% of the world's population. The company carries more than 650 live broadcast channels. RR Media  

This Israeli company has recently changed its name to RR Media. 

The stock went ex dividend (11/13) for a quarterly distribution of $.07 per share shortly after my purchase. I believe Israel has a 20% withholding tax. 

RRsat Global Communications Profile Page at Reuters 

RRST Key Statistics Page at Yahoo Finance: 

Business Overview: 

Selected Financials 2009-2013: E.P.S. has been erratic.

Page 6, SEC Form 20-F 

The erratic earnings history is one reason for the Lotto characterization. 

The shares are also somewhat expensive based on the $.45 2015 E.P.S. estimate. RRST Analyst Estimates 

Prior Trade: I previously flipped some shares bought as a Lotto: Item # D Sold 50 RRST at $7.78 (2/25/13 Post)(Snapshot of Profit=$175.59)-Item # 3 Bought 50 RRST at $3.95-LT Category (3/8/12 Post)

Recent Earnings Report: For the 2013 third quarter, RRST reported GAAP and non-GAAP E.P.S. of 7 cents per share on revenues of $33.1M-up 8.3% Y-O-Y. SEC Filed Press Release

Rationale and Risks: The stock has some dividend support and some long term potential in my opinion. Forbes magazine recently named this company as one of ten changing the TV industry. RRST-Forbes-Top-Ten.pdfForbes Article 10 Companies Changing the TV Industry (2nd page)

The share price did go over $25 back in 2007, RRST Interactive Stock Chart, before bottoming in 2012 at less than $4. For the past 2+ years, the stock has been range bound mostly between $5 to $10 per share. There was an abrupt decline starting in early August 2014, when the share price slid from close to $9 to $6.11 by early October.  

This company faces an abundant number of risks that are summarized starting at page 7 of the 2013 Annual Report referenced above. The risks include the availability and cost of satellite capacity. There are a lot of things that can go wrong which explains the Lotto characterization.

Closing Price 11/17/14:  RRST: $7.80 -0.03 (-0.38%) 

2. Redemption of AGY's 2014 Second Lien 11% Bond Maturing on 11/15/2014: This bond had traded briefly below 30, as I noted in a 2011 post. AGY HOLDING 2014 BOND PLUNGE IN PRICE All is well that ends well. 

There was a recapitalization, whereby 93% of these 2014 bonds were tendered back to the company in exchange for convertible preferred stock in the face amount equal to 50% of the 2014 bond's principal amount and another second lien bond maturing in 2016 in the remaining principal amount of the old bonds. SEC Filing Apparently, this recapitalization was sufficient to enable AGY to survive and to pay off the remaining 2014 bond owners including me. 

3. Added 50 FPF at $21.53 Roth IRA (see Disclaimer): This is an average down.

Snapshot of Trade: 

2014 Roth IRA Bought 50 FPF at $21.53

History Roth IRA: 

Security Description: The First Trust Intermediate Duration Preferred & Income Fund (FPF ) is a leveraged CEF that invests in bonds and preferred stocks with the objective of generating current income and managing duration of between 3 to 8 years, excluding the duration adjustment for leverage which increases duration.

CEFConnect Page for FPF

Data on Date of Trade 11/17/14:
Net Asset Value Per Share: $24.35
Market Price Per Share: $21.62
Discount: -11.21%
Discount at $21.53= -11.58%
Average 1 Year Discount= -9.62%

The fund started in May 2013.

Credit quality as of 9/30/14: 

First Trust Intermediate Duration Preferred & Income Fund (FPF)

As of 9/30/14, the weighted average duration was 4.34 years; the fund had a 73.5% weighting in fixed-to-floating rate securities; and the total U.S. weighting was 49.18%.  

The owner of this fund is exposed to both currency and country risk.

In 2013, the fund classified 65.15% of its distributions as qualified: Tax Letter Those distributions would necessarily be from equity preferred stocks (sometimes called traditional preferred stocks) and some European hybrids. I noticed in the semi-annual report that the fund owned several ING hybrids that pay qualified dividends. Stocks, Bonds & Politics: ING Hybrids: Links in one Post I no longer own any ING or Aegon Hybrids.

Semi-Annual Report (period ending 4/30/14)

Dividends: The fund is currently paying a monthly distribution of $.1575 per share, raised earlier this year from $.1525. Distributions At a total cost per share of $21.53, and assuming a continuation of that rate which is in no way assured, the yield would be about 8.78%. 

Prior Trades: In the Roth IRA, I have bought 150 shares at higher prices: Item # 1 Paired Trade Roth IRA to Increase Cash Flow: Sold 50 MSPRA at $20.22 and Bought 50 FPF at $22.07 (4/26/14 Post). I apparently did not discuss the 100 share add at $22.25, made on 7/25/14, which is shown in the preceding history snapshot.

I flipped a 100 FPF share lot in a taxable account as part of a pared trade with the equity preferred floater MSPRA: Paired Trade: Sold 100 MSPRA at $20.21 and Bought 100 FPF at $22.12 (April 26. 2014 Post)($203.08 total return on MSPRA)-Item # 4 Sold 100 FPF at $22.83/Bought 100 MSPRA at $20.19-Roth IRA (7/5/14 Post)($87.05 total return for FPF-2 month holding period) The later paired trade worked in that FPF has fallen from its disposition price of $22.83 to $21.53 or a 5.69% decline, while MSPRA has declined slightly from its purchase price at $20.19 to $20.01 or down less than 1%.

Rationale: The primary reason is to generate tax free income in the Roth IRA and to hopefully escape at some point with a profit on the shares. At the moment, I am about a $100 in the hole with most of that loss associated with the 100 share buy at $22.25. At 8.78%, money doubles in about 8.24 years: Estimate Compound Interest

If I can generate an 8% annualized compounded return with reinvestment of the dividends, which will be tax free in the Roth IRA, then I would regard this investment as successful.

Risks: FBF has the usual risks associated with leveraged bond CEFs that include interest rate, lost opportunity, credit and normal CEF risks. It is always frustrating when the discount to net asset value remains relatively stable and the market price sinks after purchase creating a wider discount, or the discount widens substantially more than the percentage decrease in net asset value. The potential benefit is that the discount may decrease after purchase as the net asset value per share goes up.

The fund's exposure to foreign securities add currency and country risks to the mix. U.S.D. priced funds that own foreign securities will reflect the negative, unhedged foreign currency declines. Both the Euro and the British Pound have been weak against the USD for several weeks now.

USDEUR  Interactive Stock Chart

USDGBP Interactive Stock Chart

An owner of a U.S. bond fund that owns foreign securities priced in their respective local currencies would want the value of the USD to be falling rather than gaining against the applicable foreign currencies. Many of the U.S. bond funds that own investment grade foreign bonds have concentrations in Euro and British Pound priced securities.

Leverage, of course, adds risks in addition to potential benefits. The potential benefits are that the securities bought with borrowed money go up in value as the fund earns a spread that increases its funds available for distribution compared to an unleveraged fund investing in the same or similar securities. The downside risk is that the securities bought with borrowed money go down in price as interest rates rise, including the cost of short term borrowings, which can also cause the discount to widen as individual investors flee en masse. Needless to say, there is no free lunch in today's abnormally low interest rate environment for a 8.78% yield. 

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