Monday, September 11, 2017

Observations and Sample of Recent Trades: CVX, FOLD, HRTX, NGHCZ, SGZA, SIR, THGA

The stock market is rising this morning in pre-opening trading. Gold is down in price. Interest rates are rising. 

U.S. 10 Year Treasury Note-MarketWatch

IRMA managed to avoid the worst case scenario which was a Category 5 direct hit on Miami. The hurricane shifted to the west and weakened some after hitting Cuba. 


1. Short Term Bond/CD Ladder Basket Strategy

A. Bought 2 Sterling Bank 1.55% CDs (monthly interest payments) Maturing on 1/8/2019

This bank has a 5 star rating from Bankrate: STERLING BANK Review

This bank has 11 branches. I believe that it is privately owned.

FFIEC Data for Q/E 6/30/17 (PG-2 Column stands for Peer Group)

FFIEC Central Data Repository's Public Data Distribution

B.  Bought 2 Comenity Bank 1.4% CDs (monthly interest payments) Maturing on 6/7/18 (9 month CD):

Holding Company:  Alliance Data Systems Corp. (ADS)

10-Q for Q/E 6/30/17
ADS Analyst Estimates

Fidelity offered the same CD but at a 1.3% coupon:

C. Bought 2 Citizens Bank PA 1.1% CDs Maturing on 12/6/17 (3 month CD):

D. Bought 2 State Bank of India 1.3% CDs Maturing on 3/8/18 (6 month CD):

E. Bought 2 Safra National Bank of New York 1.45% CDs (semi annual interest payments) Maturing on 10/9/18 (13 month CD):

This bank has a four star rating from Bankrate: SAFRA NATIONAL BANK OF NEW YORK Review

2. Dividend Capture Strategy:

A. Sold 30 CVX at $107.6-Used Commission Free Trades Roundtrip:

Profit Snapshot: +$113.86

Bought at $103.82 on 7/19/17: Stocks, Bonds & Politics: Item # 4.A.

I will receive one quarterly dividend of $1.08 per share that went ex-dividend on 7/27/17.

Sold too soon.

This strategy requires the following conditions:

1. Held for more than 30 days, a requirement for qualified dividend treatment; and  

2. Receive at least 1 quarterly dividend; and 

3. Make a profit on the shares.

Closing Price on 9/8/17:   CVX $110.81 -$0.99 -0.89% 
3. Intermediate Term Bond/CD Ladder Basket Strategy:

A. Sold 2 Select Income, a REIT, 4.5% SU Bonds Maturing on 2/1/25:

Profit Snapshot: $67.06

FINRA Page: Bond Detail (prospectus linked)


Select Income REIT Announces Second Quarter 2017 Results

Sold at 102

YTM Then at 4.174%
Current Yield at 4.41%

Bought at a Total Cost of 98.139

Item # 1 Update For Exchange Traded Bond And Preferred Stock Basket Strategy As Of 6/24/16 - South Gent | Seeking Alpha
YTM Then at 4.765%
Current Yield at 4.585%

I currently own 2 Select Income 4.25% SU bonds that mature in 2024. When I bought those two bonds, I mentioned that I would likely sell the two bonds maturing in 2025. Stocks, Bonds & Politics: Item # 1.A.

I bought 50 SIR common shares which has a much higher yield than this bond. That purchase is discussed in Item # 6 below. 

B. SOLD 2 Berkshire Hathaway 3.125% SU Bonds Maturing on 3/15/26:

Profit Snapshot: +$65.96

Issuer: Berkshire Hathaway Inc. Cl A (BRK.A)

BRK.A Analyst Estimates

FINRA Page: Bond Detail

Sold at 102.31

YTM Then at 2.81%
Current Yield at 3.05%

Bought at a Total Cost of 98.912 

Stocks, Bonds & Politics: Item # 1.C.  YTM Then at 3.266%  
Current Yield at 3.16%

C. Sold 2 Ebay 2.6% SU Bonds Maturing on 7/15/22:

Profit Snapshot: +$46.16

Issuer: eBay Inc. (EBAY)

EBAY Analyst Estimates
eBay Inc. Reports Second Quarter 2017 Results

Finra Page: Bond Detail

Sold at 100.3

YTM Then at 2.531%
Current Yield at 2.59%

BOUGHT at a Total Cost of 97.892

Stocks, Bonds & Politics: Item # 1.B.
YTM Then at 3.023%
Current Yield at 2.656%

I still own 2 EBAY SU bonds maturing in 2019 that I will keep until maturity unless there is a material and adverse change in Ebay's credit risk. The price shown in the snapshot below would be my total cost number, so I will make a few cents when the bond matures and 2.2% is currently a good yield for an investment grade bond maturing in less than 2 years:

After reducing my position, I still own 30 shares of Ebay's 6% senior exchange traded bond EBAYL bought at $24.99 using a commission free trade.

eBay Inc. 6% Notes due 2056 (EBAYL)

I will sell that odd lot before my commission free trades at Schwab expire, but will want a price over $27.

$6K Outflow from Intermediate Term Bond/CD Ladder Basket

4. Small Cap Biotech Lottery Ticket Basket:

A. Sold 50 FOLD at $14.28:

Profit Snapshot: +$425.98

Quote: Amicus Therapeutics Inc.  (FOLD) 

I am satisfied with a 149% gain in a year. This company is about to release some data from a trial that could cause significant movement, up or down, and I decided to just harvest the gain now. Another consideration is that the market capitalization is about $2.36 billion at $14.28 which simply means that many future good things are already built into the price and there is always a risk that those favorable developments will not occur as currently forecasted by the Stock Jocks.   

Amicus Therapeutics's stock soars on heavy volume after FDA clears NDA submission for Fabry disease treatment - MarketWatch

Amicus Therapeutics to Highlight Fabry Disease Program at the 13th International Congress of Inborn Errors of Metabolism (ICIEM) 

Amicus Therapeutics Announces Second Quarter 2017 Financial Results and Corporate Updates 

B. SOLD 20 Shares of HRTX at $16.8 ($1 Commission at IB)

Profit Snapshot: +$53.99

Quote:  Heron Therapeutics Inc. (HRTX)

Pipeline | Heron Therapeutics

Heron Therapeutics Reports Financial Results for the Three and Six Months Ended June 30, 2017 and Recent Corporate Progress

Assuming no adverse and material developments, I will consider buying this small lot back at a price about 5% lower than my previous purchase price.

Heron Therapeutics: Our Next Pick - Heron Therapeutics, Inc. (NASDAQ:HRTX) | Seeking Alpha

5. Continued to Pare in a Roth IRA Account Potentially Long Term Corporate Bonds Issued by Insurance Companies:

Except for SGZA, these bonds are subordinated to senior bonds and are superior only to common and equity preferred stocks in the capital structure. 

I am particularly cautious in managing my IRA accounts. All of these bonds have potentially long durations and will decline when longer term interest rates rise. 

I am also concerned that all of these bonds were issued by companies in the property and casualty insurance business. I simply do not know their risk exposure to Harvey, IRMA and potentially more catastrophic events likely to occur due to climate change in the coming years.  

Then there is the interest rate risk issue, which is not a currently in vogue risk, but that could turn quickly.

One of the issuers, National General, had a poor second quarter report. 

A. Sold 50 THGA at $25.69-a Roth IRA Account:

THGA makes quarterly interest payments at the fixed coupon rate of 6.35% on a $25 par value. This security may be redeemed by the issuer on or after 3/30/18. Hanover may defer interest payments for up to 5 years. However, during any such deferral, Hanover can not make cash dividend payments on its junior securities. The stopper clause can be found starting at page S-15. PROSPECTUS

Profit Snapshot: +$35.54

South Gent's Comment Blog # 6: Bought 50 THGA in Roth IRA at $24.7 

Quote:  Hanover Insurance Group Inc. 6.35% Subordinated Notes due 2053 (THGA)

The next quarterly ex interest date is on 9/14/17. 

Roth IRA History:

Note the buy at $21.58 on 11/10/13. The first trade was a 50 share buy in 2013: Item # 3 Roth IRA: Bought 50 THGA at $21.58 (11/6/13 Post)-Sold THGA: 50 Shares at $23.46-Roth IRA and 50 Shares Taxable Account at $23.67 (5/17/14 Post)(profit $143.84). That is what can happen when longer term interest rates move up from one historically abnormal rate to another less abnormal rate.  

As with other potentially long duration exchange traded bonds, THGA lost about 20% of it market value during the 2013 interest rate spike, moving from a high of $25.7 in May 2017 to a low near $20.4 that December:  

I also discussed this junior bond in these posts: Stocks, Bonds & Politics: Item # 4 Sold 50 THGA at $25.36; Item # 4 Update For Exchange Traded Bonds And Preferred Stock Basket Strategy As Of 1/22/16 - South Gent | Seeking Alpha

B. Sold 50 THGA at $25.72:

Profit Snapshot: +$42.71

South Gent's Comment Blog # 6: Bought 50 THGA at $24..87


Total THGA Trading Profits: $259.61 

C. Sold 50 NGHCZ at $25.22-a Roth IRA Account:

Profit Snapshot: +$59.47

Item # 2. Paired Trade: Bought 50 NGHCZ at $23.75 (a Roth IRA account) and Another 50 at $23.2 (a new Taxable Account)-and Sold 50 NGHCZ at $25 (a Roth IRA account)-Update For Bond And Preferred Stock Basket Strategy As Of 9/10/15 - South Gent | Seeking Alpha

National General Holdings Corp. Subordinated 7.625% Notes Due 2055 (NGHCZ)

Issuer: National General Holdings Corp. (NGHC) 

NGHC Analyst Estimates 

National General Holdings Corp. Reports Second Quarter 2017 Results ("reported a second quarter 2017 net loss of $5.1 million or $0.05 per diluted share, compared to net income of $44.3 million or $0.41 per diluted share in the second quarter of 2016. Second quarter 2017 operating earnings(1) was $11.9 million or $0.11 per diluted share, compared to $46.4 million or $0.43 per diluted share in the second quarter of 2016." emphasis added)

NGHCZ is a 7.625% junior bond issued by National General Holdings that matures in 2055. On or after 9/15/2020, the issuer has the option to redeem at the $25 par value plus accrued and unpaid interest. 

NGHCZ Prospectus

The history snapshots for NGHCZ do not yet reflect a quarterly interest payment that will be made on 9/15/17 that went ex interest on 9/1/17: National General Holdings Corp (NGHCZ).

Roth IRA History: 

D. SOLD 50 NGHCZ AT $25.3

Profit Snapshot: +$97.59

History of Interest Payments (does not include one last payment): 

E. SOLD 100 NGHCZ AT $25.3:

Profit Snapshot: +$149.54

History: The Schwab history snapshots go back two years and consequently do not include some activity for this holding: 

Total NGHCZ Trading Profits= $402.15 

F. Sold 50 SGZA at $25.51 Roth IRA Account

Prospectus (optional call on or after 2/18/18 at the $25 par value) 

Profit Snapshot: +$56.55

South Gent's Comment Blog # 6: Bought 50 SGZA Roth IRA at $24.1 

Quote: Selective Insurance Group Inc. 5.875% Senior Notes due 2043 (SGZA)

Issuer: Selective Insurance Group Inc. (SIGI) 

SIGI Analyst Estimates 

Selective Reports Second Quarter 2017 Net Income per Diluted Share of $0.70 and Operating Income PER Diluted Share of $.68 

Roth IRA History: 

Last Discussed: Stocks, Bonds & Politics: Item 2.A. Sold 40 SGZA at $24.83-South Gent's Comment Blog # 6: Bought 40 SGZA at $23.5 

I will buy this bond when it dips in price. The first price plunge occurred shortly after the bond's IPO in 2013. SGZA Stock Chart The price fell quickly from the $25 per share offering price to about $19.5 due to the interest rate spike that year which started in early May and ended on 12/31/13.

My first purchase was during the interest rate spike in 2013: Item # 3 Bought 50 SGZA at $20.6 (10/19/13 Post) I did not hold onto those shares for long, selling that lot for a $140.58 gain in May 2014.

The second plunge in price 
occurred during the interest rate spike that started last summer and ended in December 2016. 

G. Sold 50 SGZA at $25.53

Profit Snapshot: +$100.07

This lot was bought at $23.53 during the minor interest rate spike after the election. South Gent's Comment Blog # 8 


Total SGZA Trading Profits: $384.75

6. Stocks, Bonds & Politics: Gateway Post: Equity REIT Common and Preferred Stock Basket Strategy:

A. Bought 50 SIR at $22.95

After selling 2 SIR 2025 bonds as noted above, I nibbled on the higher yielding common shares.  I do not like this REIT.  Basically, I took my $2,038 proceeds from selling those bonds and used $1147.5 or 56.3% to buy this 50 share lot that currently produce $12 more in annual  income ($102) compared to the two bonds ($90 per year). 

Quote: Select Income REIT (SIR) 

Current Quarterly Dividend Rate: $.51 per share- SIR Dividend History

Dividend Yield at a Total Cost Per Share of $22.95 = 8.89%

Previous Trade: I briefly owned the common shares 1 time. Item # 2 Sold 50 SIR at $25.17 (profit snapshot= +$149.58 (8/14/12 Post)-Item # 2 Bought 50 SIR at $21.86 (5/29/12)

That earlier purchase was made on 5/25/12 and was sold on 8/9/12. If an investor had bought my lot on 8/9/12, and reinvested the dividend, the total average annual return through 9/7/17 would have been 6.1%, lower than the dividend yield.

As of 6/30/17, the REIT owned 364 buildings located in 35 states that contain approximately 45.2 rentable square feet with 95.9% of that space leased. The REIT has 313 different tenants. The average remaining lease term was 9.7 years. 10-Q for the Q/E 6/30/17 at pages 14-15 Fixed rate debt is discussed starting at page 29.

Major Tenants:

Earnings Report for the Q/E 6/30/17: SEC Filed Press Release

That is at best a mediocre report IMO.

2017 First Quarter Report

2016 Annual Report (risk factor discussion starts at page 26) 

A significant number of risks summarized in the Annual Report deal with the external management agreement. Government Investors Trust owns a 27.9% stake in SIR as of 6/30/17, which was acquired IMO at a clearly excessive price in order to solidify RMR's management control over SIR. 

SIR has also IMO paid a lot for its acquisition of Cole Corporate Income Trust (see, e.g. Brad Thomas article titled You're Not A Sucker, But We All Should Be Better Second-Level Thinkers - Select Income REIT (NYSE:SIR) | Seeking Alpha) 

Select Income REIT to Acquire Cole Corporate Income Trust for Approximately $3 Billion (9/2/14 Press Release)

Select Income is an externally managed REIT. Importantly, it is a major negative IMO that the external manager is RMR Group controlled by Barry Portnoy and his son Adam. 

RMR 10-Q for the Q/E 6/30/17

Before anyone considers purchasing the common, time needs to be spent in reviewing Select Income's history, and what RMR did to entrench its position in other REITs after being ousted by the shareholders as the manager of Commonwealth REIT, which is now known as Equity Commonwealth (NYSE:EQC). That negative history is beyond the scope of this post.

Some of that history is discussed by Brad Thomas in this Seeking Alpha article.
IMO, the shareholders of Government Investors Trust (NYSE:GOV), a REIT managed by the same external management company, were disadvantaged more than SIR shareholders as RMR cemented its control over other publicly traded REITs before dissidents could take them away.
It is just extraordinary that so many EQC shareholders voted to ditch RMR. Shareholder Vote To Oust Commonwealth REIT Board - Forbes. And it was hardly surprising that RMR erected roadblocks and hurdles to prevent that vote from even happening. (e.g. CommonWealth REIT Challengers Win Round In Arbitration - Law360
DisclaimerI am not a financial advisor but simply an individual investor who has been managing my own money since I was a teenager. In this post, I am acting solely as a financial journalist focusing on my own investments. The information contained in this post is not intended to be a complete description or summary of all available data relevant to making an investment decision. Instead, I am merely expressing some of the reasons underlying the purchase or sell of securities. Nothing in this post is intended to constitute investment or legal advice or a recommendation to buy or to sell. All investors need to perform their own due diligence before making any financial decision which requires at a minimum reading original source material available at the SEC and elsewhere. A failure to perform due diligence only increases what I call "error creep". Stocks, Bonds & Politics: ERROR CREEP and the INVESTING PROCESS Each investor needs to assess a potential investment taking into account their personal risk tolerances, goals and situational risks. I can only make that kind of assessment for myself and family members. 


  1. I noticed that I bought 50 shares of SIR rather than 30 shares so I made some changes in the original post. The 50 shares will based on the current payout produce $12 more in annual income than the two SIR bonds that were sold using 56.3% of the proceeds realized from the two bonds.

  2. Aldeyra Therapeutics, Inc. (ALDX):

    $6.47 +$2.22 (+52.35%)
    As of 12:31PM EDT.

    I currently own 70 shares as part of my small cap biotech lottery ticket basket strategy. The average cost per share is $5.78.

    For just about all of my holding period, I have been in the hole and a 52% gain today brings me into the green.

    Even with that rise, the market cap is just $98M so any good news about a drug candidate is likely to cause a big share pop.

    There was news today:

    Discussed at Item # 5

  3. South Gent,

    I also own ALDX and I think it is a hold for now because I really can't tell whether it will go up or down from here.

    The lottery ticket basket strategy has been working so far. Half of the stocks in my basket are profitable; the other half are in the red and a few of them lost more than half of their value (AVGR, MACK, CFRX,TRVN, and ARLZ). However, due to some out-sized wins (DVAX, CORI, IMGN, and RXDX) the overall basket performs well (ahead of the S&P500) and I plan to build another small cap biotech lottery ticket basket before the year end.

    1. Y: There is just no way to know about ALDX. There was a disappointment that drove the stock lower after my purchase. Given the market capitalization, one successful drug could drive the price much higher, but it is guesswork to know whether a drug will be approved and will then achieve significant sales. But one drug with $400M in peak sales would do wonders when the market cap is less than $150M.

      There is also at least a possibility of being acquired. Allergan might be a logical acquirer.

      Aldeyra Therapeutics, Inc. (ALDX)
      $8.62+2.28 (+35.83%)
      As of 1:01PM EDT.
      Volume 3,203,298
      Avg. Volume 260,345
      Market Cap 131.43M
      Day's Range 6.605 - 8.700
      52 Week Range 3.800 - 8.700

      The price has more than doubled since the $4.15 close on 9/8/17:

      Crash and burns are inevitable when buying clinical stage biotech stocks which is one reason why I keep my exposure low and use a basket strategy. If I knew which ones would succeed it would be easier.

      After trading MACK profitably, I am sitting on an unrealized loss of $300, but that loss is less than it appears given the $1.06 per share dividend. Netting out that dividend, I am down about $195. The shares underwent a 1 for 10 reverse split recently.

      The company still has 3 compounds in clinical developments after selling ONIVYDE.

      And it is possible that milestone payments will be made for approved additional indications for ONIVYDE but I am not following those developments much.

      The current market price does not reflect IMO that the those milestone payments, other than the $33M mentioned below, will actually be made:

      " Under the terms of the agreement, which has been unanimously approved by the Merrimack Board of Directors, Merrimack will receive from Ipsen: $575 million in cash at closing; and up to $450 million in additional regulatory approval-based milestone payments. Merrimack will also retain the rights to receive net milestone payments pursuant to Merrimack's exclusive licensing agreement with Shire for the ex-U.S. development and commercialization of ONIVYDE for up to $33 million. The $33 million of net milestone payments includes payments related to ONIVYDE of $18 million from the sale of ONIVYDE in two additional major European countries, $5 million related to the sale of ONIVYDE in the first major non-European, non-Asian country and $10 million for the first patient dosed in the planned small cell lung cancer (SCLC) trial. The Company believes these near-term payments are highly probable based on current data and expects they will be received in 2017."

      The progress of new indications can be followed at the IPSEN website.

      The market cap is currently $186.86M at $13.78, which also assumes IMO that it is unlikely, though possible, that any of the three pipeline drugs will be approved.

      Possible Milestone Payments:
      "Prior to any tax impact, gross proceeds for achieving these milestones equates to approximately $3.46 per outstanding share of common stock, based on the number of Merrimack outstanding shares today. The milestones are composed of: $225 million for U.S. Food and Drug Administration ("FDA") approval in first-line pancreatic cancer, $150 million for FDA approval in small cell lung cancer and $75 million for FDA approval in any third indication."

  4. I have published a new post: