Thursday, April 19, 2018

Observations and Sample of Recent Trades: DOC, HBAN, PRMSX, ORIT

Economy

March Retail Sales: 





U.S. retail sales pop up 0.6% in March after three straight declines - MarketWatch


"Industrial production rose 0.5 percent in March after increasing 1.0 percent in February; the index advanced 4.5 percent at an annual rate for the first quarter as a whole. After having climbed 1.5 percent in February, manufacturing production edged up 0.1 percent in March. Mining output rose 1.0 percent, mostly as a result of gains in oil and gas extraction and in support activities for mining. The index for utilities jumped 3.0 percent after being suppressed in February by warmer-than-normal temperatures. At 107.2 percent of its 2012 average, total industrial production was 4.3 percent higher in March than it was a year earlier. Capacity utilization for the industrial sector moved up 0.3 percentage point in March to 78.0 percent, a rate that is 1.8 percentage points below its long-run (1972–2017) average." The Fed - Industrial Production and Capacity Utilization - G.17


Industrial production rises as capacity utilization at three-year high - MarketWatch


IMF lifts U.S. growth outlook on tax-cut view - MarketWatch-Sugar high? 


U.S. Standing Firm on Nafta Demands, Mexican Business Chief Says - Bloomberg



+++++++

Markets and Market Commentary

These beaten-down stocks look like bargains — and yield up to 8.1% - MarketWatch (this is a reprint from a Barron's article that discusses Sweden's big banks) 
Solid earnings may not prevent another correction: Robert Shiller: CNBC
This proven recession predictor is close to sounding an alarm - MarketWatch (the article is referring to a possible yield curve inversion). 

Investors Are Getting Worried About an Inverted Yield Curve-Bloomberg


I am not yet worried about a yield curve inversion for two reasons. 

First, it has not happened yet. 

Second, there are a number of abnormal non-market related  factors impacting intermediate and longer term interest rates. 

For the yield inversion to give a signal worth hearing, the market must be giving the signal rather than central bankers through abnormal monetary policies that result in interest rate manipulation. 

The intermediate and longer term rates are still being manipulated to abnormally low levels. The most significant manipulation is occurring among European central banks and the BOJ. Those manipulations keep intermediate and longer term sovereign debt yields abnormally low throughout the developed world. 

The FED is also maintaining a balance sheet that is abnormally large with its portfolio only gradually being reduced by redemption proceeds that are no longer being reinvested. System Open Market Account Holdings - FEDERAL RESERVE BANK of NEW YORK (balance sheet was at $4.151+ trillion as of 4/11/18) 

Since U.S. intermediate and longer term interest rates are not being set in a free market, the signal given by a U.S. yield inversion, which correctly predicted prior recessions after a lag time, is different from prior yield inversions.



10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity-St. Louis Fed





10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity-St. Louis Fed


++++++

Trump

Donald wants to throw Comey in jail. The President of the U.S. has tried and convicted Comey of various crimes outlined by Our Dear Leader in this tweet: 




‘This is not some tin-pot dictatorship’: Comey pushes back against Trump’s suggestion he be jailed 


That is one remarkable and extremely disturbing tweet coming from a U.S. President.  

I am reserving judgment on whether Comey violated a law by releasing classified information. Abuse of Power: The White House Slimes James Comey—Again: Lawfare 

Comey has denied under oath leaking classified information, but he is not the final arbiter on that question and neither is the President. James Comey memo: Did the former FBI director admit to leaking classified information in hearings? | PolitiFact (no he denied leaking classified information) 

As to Trump's claim that Comey lied under oath, Trump has once again created his own reality and then tried and convicted someone based on his false information. This is Trump's claim: 



This particular claim involves a Comey memo which he gave to a non-government lawyer friend who then discussed the contents with the press.  This is what Comey actually said:



There is no basis for a "perjury" criminal charge based on that testimony. First, the Comey memo was leaked to the NYT (5/16) after Comey's testimony on 5/3 and after Comey was fired by Trump (5/9). Dismissal of James Comey - Wikipedia So the testimony was accurate when given. 

Second, technically, Comey did not authorize anyone at the FBI to release this information and he did not personally talk to the reporters as the source. 

Trump just accused Comey of lying under oath. (He misquoted ‘Fox & Friends’ to do it.) - The Washington Post

What the Critics Are Saying About the New James Comey Book | Literary Hub  


Maybe Kim and Donald can switch jobs after their big summit, sort of like Wife Swap except the U.S. and NK will switch leaders in a new must watch reality TV series.  


I doubt the North Koreans will notice any difference. The NK "press" would not be the "enemy of the people" since they will dutifully fawn over and praise Donald and will never contradict his reality creations with facts.  


Kim could spray paint his hair orange and start making guest appearances on Fox and Friends. WP and NYT reporters could be used as targets in live round military exercises.  

Kim could become hugely popular among a particular segment of the U.S. population. And, Donald's critics could use a rest period from Donald, with KIM providing the entertainment during a much needed intermission period.  


Kim could follow through with Trump's threats on incarcerating people without due process and a fair trial. Lock them up and throw away the key based on the prerogatives of our Dear Leader. 

Comey and Hillary can share the same cell to save money. Trials cost money and they are so English. Why bother when Donald has already "told it like it is", as Trumpsters are fond of saying, since Donald is obviously a modern version of Honest Abe. 

Tracking over 2,400 false or misleading claims made by President Trump - Washington Post (the list includes only public statements made after his inauguration to 3/1/18) 

Trump will end up making more demonstrably false public statements during his four year term that all prior Presidents made combined into a single list. 

++


Trump threw Nikki Haley under the bus. 

At least she has a lot of company in that location. Nikki Haley finds herself under the bus as Trump shifts course on RussiaWhite House Throws Nikki Haley Under the Bus, She Flips It'Confused' UN envoy Nikki Haley hits back at White House - BBC News

Vlad will tell you that the Russian journalist Maxim Borodin slipped and fell out of a window: Russian journalist Maxim Borodin dies after mysterious fall in Yekaterinburg - CBS News  Donald thinks Vlad is a "strong" leader.  


Trade Surplus in Cars with China - FactCheck.org


Paul Ryan Misleads on Corporate Tax Revenues - FactCheck.org


Pruitt's Tall Tale on Toxic Cleanups - FactCheck.org  


Hannity’s rising role in Trump’s world: ‘He basically has a desk in the place’


Poll: Cruz running neck and neck with Dem challenger


Tennessee lawmakers punish Memphis for removing Confederate statues (actually, Memphis did not remove the two statutes, including one of Nathan Bedford Forrest, a founder of the Ku Klux Klan, but sold the two parks where the statues were located to a non-profit and the non-profit removed the statutes. The republicans thought that was "sneaky" even though it was perfectly legal)


There will be a special election in Arizona's 8th Congressional District next Tuesday. The incumbent GOP representative, a family value's republican, had to resign due to a scandal. Normally, this would not be a competitive district for the Democrats who did not even field a candidate in the last election. Trump carried the district by 21%. The Democrat candidate, Dr. Hirai Tipirneni, may make this a close special election.  Hiral Tipirneni (@hiral4congress) | Twitter

Dark money’ group backs Arizona Republican in special election

++++++++++++++

1. Eliminated T. Rowe Price Emerging Markets (PRMSX):


Profit Snapshot: $1,555.22 




Quote: PRMSX Fund - T Rowe Price Emerging Markets Stock Fund Overview - MarketWatch


I could not resist taking a profit in one of my T.Rowe Price Mutual Funds.


In this account, I can not take a broad snapshot since it would include my account number.


This snapshot comes from my own record of share purchases:



I will do this type of calculation for mutual fund shares to confirm the total profit calculated by the broker.

T. Rowe Price Emerging Markets Stock Fund (PRMSX) Fund Performance and Returns


2017: +42.85%

2016: +11.94%
2015: -11.49%
2014: + 1.41%

The fund has not generated much in distributions since I bought shares. There were no capital gains distributions and the following annual dividends:


Per Share

2017: $.26
2016: $.32
2015: $.16

Money is consequently made on selling the shares for a profit which I decided to do while I still had a profit to harvest.


2. Small Ball: Equity REIT Common and Preferred Stock Basket Strategy:


A. Bought 15 Physicians Realty at $14.55-Used Commission Free Trade:




Quote: Physicians Realty Trust (DOC)


2017 Annual Report


April 2018 Investor Presentation 


Position This Account Only: 30+ Shares (1 dividend Reinvestment so far)

Average Cost Per Share: $14.83
Dividend: Quarterly at $.23 per share ($.92 annually)
Reinvesting the Dividend: Yes
Last Ex Dividend Date: 4/2/18
Dividend Yield at TC = 6.2%

Last DiscussionItem 1.C. Added 5 DOC at $14.7 (3/12/18 Post)


I discussed in that post the earnings report for the Q/E 12/31/17.


SEC Filed Earnings Press Release for the Q/E 12/31/17 (total 2017 investment activity was $1.4 Billion)


In my previous posts, including the last one cited above, I criticized management for engaging in empire building that was not producing tangible benefits to its shareholders. FAD per share declined Y-O-Y for the 2017 4th quarter and was barely above the existing dividend payout. The share count went from 139.6M as of 12/31/16 to 185.27M as of 12/31/17. Normalized FAD did increase from $34.178M to $44.207, but FAD per share declined from $.245 to $.238 with the quarterly dividend payout at $.23 per share: 




Brad Thomas claimed that the payout ratio was now less than 80% in a recent SA article. He focuses on FFO which is not a free cash number. FFO for DOC excludes real cash expenses (routine maintenance expenditures) and includes non-cash revenues (straight line rent). It is not an appropriate number for  measuring a dividend payout ratio.  I am not sure why anyone would consider non-cash revenue created by an accounting convention to be cash available for distribution as a dividend or why money used in repairs to be cash that can be distributed to shareholders.   

If investors are going to value REITs based on cash flow rather than GAAP earnings, and want to properly measure dividend protection and to predict both dividend growth and its sustainability, a pretend cash flow number is not a prudent way to achieve those objectives.  

In short, I would agree with the market's assessment as reflected in the stock price over the past year.

The main investment thesis is that this REIT owns medical office buildings. Portfolio  


1 Year Chart: Bear Market Trend


In June 2017, the company sold 20M shares priced at $20.4: Prospectus  


In March 2017, 15M shares were sold at $18.2 Prospectus 


Anyone who bought shares in those offering and has held onto their shares have been torched and scorched. 


Any similar sized offering now would crater the stock. I would have to say that I would not be surprised by a large stock offering sometime this year that will harm existing shareholders. 


The last bond offering was $350M of 3.9% SU bonds maturing in 2028: November 2017 Prospectus


On 3/20/18, Morgan Stanley lowered its price target to $17 from $18 and maintained its equal weight rating.


3.  Small Ball: REGIONAL BANK BASKET STRATEGY:

A. Bought 20 ORIT at $15.14-Used Commission Free Trade




Quote: Oritani Financial Corp.

ORIT Analyst Estimates
Website: Oritani Bank: Corporate Profile ("The Bank currently operates its main office and 25 full service branches in the New Jersey Counties of Bergen, Hudson, Essex and Passaic.")

This purchase concludes my ORIT buying program. I now own 100+ shares.


ORIT will benefit significantly from the lower federal income tax rates. 



10-K at page 81 

The bank responded to the tax cut by raising its quarterly dividend to $.25 from $.175. Oritani Financial Corp. Announces Increased Dividend and 2nd Quarter Results


My first purchase was 50 shares at $16.73. Item # 1.A. Bought 50 ORIT at $16.73 (12/26/17 Post)


This last purchase lowered my average total cost per share to $16.09. I will be reinvesting the dividend.  

Dividend: Quarterly at $.25 ($1 annually)

Oritani Bank : Dividends


Dividend Yield at $16.09 Total Cost = 6.215%


Last Substantive DiscussionItem # 5.A. Bought 20 ORIT at $15.88  (2/22/18 Post) I discussed the last earnings report in that post.


B. Bought 50 HBAN at $14.49-Used Commission Free Trade:





QUOTE Huntington Bancshares Inc. (HBAN)

About: HBAN is a super regional bank holding company. Its operating bank has 956 branches located in 8 states.




2017 Annual Report


On the day of this purchase, the consensus analyst E.P.S. estimates were $1.22 this year $1.33 for 2019. HBAN Analyst Estimates


P/E Based on 2019 Estimate and a $14.49 Price = 10.89


Dividend: Quarterly at $.11 per share ($.44 annually)


Huntington Bancshares Incorporated Declares Quarterly Cash Dividends On Its Common Stock


Dividend Yield at a $14.49 TC: 3.04%


Last Ex Dividend Date: 3/16/18


Last EliminationStocks, Bonds & Politics:Item # 3.A. Sold 100 HBAN at $16.12  (2/3/18 Post)(profit snapshot = $254.75)


As noted in that post, HBAN is not a major beneficiary of the corporate tax cut since it historically has had a low effective tax rate.


E.G. 3rd quarter 2017 10-Q at page 19:




Last Buy DiscussionItem # 1.A. Bought 100 HBAN at $13.58  (12/7/17 Post)


Last Earnings Report (Q/E 12/31/17):


"Excluding approximately $123 million of federal tax reform-related estimated tax benefit, or $0.11 per common share, adjusted earnings per common share were $0.26."


For 2017, E.P.S. was .98 per share, "excluding approximately $152 million pretax of FirstMerit acquisition-related expenses, or $0.09 per common share after tax, and an estimated tax benefit of $123 million, or $0.11 per common share, related to the Tax Cuts and Jobs Act".


A number of financial metrics were skewed by the extraordinary items mentioned above, including ROA and ROE. 


NIM: 3.3%

Non-Accrual Loans to Total Loans: .5%
Non-Performing Assets to Total Assets: .55%
Charge offs to Average Total Loans annualized: .24%

Huntington Bancshares Incorporated Reports Record Quarterly and Annual Earnings


On March 22, 2018, UBS started HBAN at a buy with a $20 price target.


In a report dated 1/23/18, the Morningstar analyst placed a $15 per share fair market value. The price was then $16.03.


In a report dated 3/12/18, the S & P analyst had a $18 price target and a 4 star rating.


HBAN Trading Profits To Date = $434.13 


C. Started 10 Share Buying Program in HBAN Using Commission Free Trades:  


I bought the 50 share lot in my Schwab account where my free trades expire in August. Consequently, I will not start now a "buying program" with less than a 50 share lot purchase. 


I sent Fidelity more money and I now have 455 commission free trades that expire in April 2020. 





My small lot buys will hereafter be in that account. 


First 10 Lot HBAN Buy at $14.69  


I will average down in small lots but each new purchase will have to be at the lowest price in this series. 


4. Intermediate Term Bond/CD Ladder Basket Strategy

A. Bought 2 W.P. Carey 4% SU Bonds Maturing on 2/1/25


Finra Page: Bond Detail (prospectus linked)


Credit Ratings: 



W. P. Carey Inc. Announces Pricing of Euro 500 Million of Guaranteed Senior Unsecured Notes ("€500 million aggregate principal amount of 2.125% Senior Notes due February 15, 2027")

Bought at a Total Cost of 98.477  (includes $4 Vanguard commission)
YTM at Total Cost Then at 4.259%
Current Yield at TC = 4.0619%


I previously bought and sold another WPC SU bond. Item # 4.D. Sold 2 WPC 4.6% SU Bonds Maturing on 4/1/24 at 105.382 (10/2/2017 Post)

B. Bought 1 Vodafone 2.95% SU Bond Maturing on 2/19/23:




I now own 2 bonds.


FINRA Page: Bond Detail (prospectus linked)


Issuer: Vodafone Group PLC ADR (VOD)

VOD Analyst Estimates
Report Q/E 12/31/18.pdf

Credit Ratings:



Debt investors

Bought at a Total Cost of 97.605

YTM at TC Then at 3.49%
Current Yield at TC = 3.0224%

C. Bought 1 Anheuser Busch Worldwide 2.5% SU Bond Maturing on 7/15/22:




I now own 2 bonds.  I am losing 9 BUD bonds next Monday that would have matured on 2/1/2019 but for BUD's election to redeem early.    


FINRA Page: Bonds Detail (prospectus linked)


Bought at a Total Cost of 97.824

YTM at TC Then at 3.048%
Current Yield at TC = 2.556%

++


AT & T is redeeming on 4/20/18 a 2.85% SU bond maturing in 2023. 
The outstanding principal amount is $1.75B. Bond Detail



I will be curious to see what the premium will be to par value. This makes no sense to me. Sometimes, this happens when a bond prospectus somehow restrains the issuance of new bonds. The only way to get rid of the problem is to redeem the bond. I did not check to see whether this was the case here. 

The bond has a make whole provision: 



5. Short Term Bond/CD Ladder Basket Strategy:


A Bought 1 Laboratory Corporation of America 2.625% Maturing on 2/1/2020-In a Roth IRA Account:




I now own 2 bonds in this Roth IRA account and 3 in taxable accounts.


FINRA PAGE:  Bond Detail (prospectus linked)


Issuer: Laboratory Corp. of America (LH) 

LH Analyst Estimates 
LabCorp Announces Record 2017 Fourth Quarter and Full Year Results and Provides 2018 Guidance

Bought at a Total Cost of 99.58 (with $2 Vanguard Commission)

YTM at TC then at 2.864%
Current Yield at TC =  2.6361%

B. Bought 1 Treasury 1% Coupon Maturing on 9/15/18:

YTM = 1.873%



I now own 4 bonds.


C. Bought 1 Treasury 1.5% Coupon Maturing on 12/31/18:

YTM 2.036%




I now own 4 bonds.

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.