Observations and Sample of Recent Trades: CPB, EMP, TCRD, VSTM

Economy:

Durable-goods orders sink 1.7% in April, but strip out Boeing planes and the numbers look good - MarketWatch

Existing-Home Sales Slide 2.5 Percent in April | www.nar.realtor (sales are down 1.4% Y-O-Y)

Mortgage interest rates 2018: Rates hit 7-year high, slow home sales: USA Today 

Tax breaks for home mortgages to sink 30% in 2018 due to Trump tax law, study shows - MarketWatch

+++++++

Markets and Market Commentary: 

OPEC, Russia prepared to raise oil output-Reuters

The press reports that OPEC and Russia were considering a 1 million barrel per day production increase caused a 2%+ decline in energy stock ETFs last Friday. 

FENY $20.79 -$0.58 -2.71% : Fidelity MSCI Energy Index ETF 

The decline in crude prices helped consumer staple stocks whose margins have been squeezed in part by higher transportation costs. Gasoline is just one component of those higher logistical costs. 

The crude oil price decline is continuing this morning: Oil battered anew on concerns about Russia, OPEC supply rise - MarketWatch

The recent decline in U.S. interest rates has received an assist from a decline in Germany's ten year treasury whose yield is currently below  .37%. Germany 10 Year Government Bond The ten year U.S. treasury hit a 7 year high yield on 5/17/18 and has been trending down in yield since then. The ten year German bond closed that same day at .64%. 

Here’s why Fed rate hikes are like shaking a tree full of rotten fruit - MarketWatch

Harley-Davidson workers stunned by plant closure after tax cut: NBC News

Trump signs bank bill rolling back some Dodd-Frank regulations: CNBC

++++++++

Trump: 

Lawrence Tribe, the noted constitutional scholar, had the following comments on what Trump and the House republicans were doing in "Spygate": 

Their conducts exemplifies "the slow but steady collapse of the most basic norms of investigatory, prosecutorial and judicial independence and display Trump doing in plain sight what Richard Nixon worked so hard to hide from public view. What disturbs me most is that not even sacrificing our counterintelligence shield against foreign adversaries with no factual basis is beyond this president — and that not even such transparent treachery is likely to be recognized by the public for the betrayal it clearly is once Trump enlists his Fox allies to label responsible investigation as ‘Spygate. ” Justice Department briefings: What in the world is going on? - The Washington Post

Donald Trump's sustained attacks on American rights 

I would agree that the vast majority of republicans support a President who is actively undermining the foundations and principles of U.S. Democracy and attempting to erode the checks and balances on presidential power. 

‘Too inconvenient’: Trump goes rogue on phone security-POLITICO I would assume that foreign governments are listening to his conversations. 

Trump's attacks on the free press and any and all investigations of him work. A recent CBS poll found that 53% of the population believe Mueller is politically motivated and only 44% believe that the Mueller investigation is even legitimate. More Americans now say Russia investigation is politically motivated – CBS News poll 

Leslie Stahl recently mentioned that Trump admitted attacking the media so that people would not believe negative stories about him. Note that it is unimportant to Donald whether the stories are true or point out Trump's lies with actual facts. The objective is to convince people that negative news about Donald is per se false. Trump told Lesley Stahl he bashes press to discredit negative stories: CNBC 

This kind of attack posture has been a successful strategy utilized by republicans starting with Richard Nixon and his first Vice-President Spiro Agnew (resigned in face of a criminal indictment). 

The purpose is to gain and maintain political power by convincing tens of millions that non-GOP approved media outlets can not be trusted as information sources and consequently the GOP's line will be accepted without question or reservations. 

A federal district court judge has ruled that Trump can not block persons who wish to leave comments to his tweets. Trump is without question using his twitter account in his official capacity as President, and the President can not control speech contrary to Trump's authoritarian and anti-democratic beliefs. Knight First Amendment Institute at Columbia University et. al. vs. Donald J. Trump et. al- Memorandum and Order Granting Summary Judgment to the Plaintiffs.  

There will never be an end to Trump's outrageous and demonstrably false statements.  

Donald recently said that children who are brought illegally to the U.S. or enter the U.S. unaccompanied by an adult are not innocent because they will grow up to join MS-13. Trump warns against admitting unaccompanied migrant children: ‘They’re not innocent’ - The Washington Post 

Anyone who correctly calls that a gross generalization is in Donald's words "coming to the defense of MS 13 thugs" who they want to nurture.  

A common tactic among demagogues like Donald is to take a specific example and then generalize to everyone in his disfavored category of people, which is an extremely broad category for Donald that includes at least 50% of U.S. citizens and all non-Caucasians.   

In an Michael Gerson's opinion column published in the WP, he asks whether republicans are aiding and abetting an "instinctual demagogue or an instinctual authoritarian." Are Republicans abetting a demagogue — or something worse? - The Washington Post That is not an either/or choice since Trump is both a demagogue and an authoritarian. I do not regard that as debatable.  

This Trump tweet is delusional: 

+++++

Michael Cohen met with Russian oligarch at Trump Tower days before inauguration, report says - CBS News

FBI warns Russians hacked hundreds of thousands of routers | Reuters

Apparently, hacking a wireless router is just another way to gain access to confidential information. I have a Netgear wireless router and managed to update the firmware in a few minutes using the Netgear Genie App, one of the recommended steps in combating this particular problem. Once this App is downloaded, I simply clicked the "router settings" tab and scrolled to the "router update" tab.     

Roger Stone sought dirt on Clinton from Assange during 2016 election: report

+++++++

1. Small Ball: 

A. Bought 50 VSTM at $4.73  (small cap biotech lottery ticket basket): 

Verastem Inc.  (VSTM) 

Closing Price Last Friday: VSTM $5.38 -$0.35 -6.11% (market cap at that price is about $350M). 

This purchase is part of my small cap biotech lottery ticket basket. I have no expertise in this sector, but simply buy small lots in whatever appears interesting to me. 

I am focusing mostly on small companies. A successful drug trial may hardly move the needle for a Merck, Novartis or Pfizer. There is at least a potential for a substantial price move when a small company succeeds with just one of its drugs. 

The problems with the small clinical stage company is that a failure along the way can devastate the stock price; and there is a frequent need to raise more capital through stock offerings when it is not clear that the drug trial will be successful. 

I will frequently look for a small company that has just raised capital through an equity offering, which depressed the stock price and who has one compound deep into the trial process. 

Verastem just raised capital through an equity offering. Verastem Oncology Announces Pricing of Public Offering of Common Stock (5/16/18)("public offering of 7,777,778 shares of its common stock at a price to the public of $4.50 per share." with a greenshoe  of up to 1,166,666 shares). Prospectus

It was slightly encouraging that the shares rallied after that offering was completed. 

Lead Drug Candidate-Duvelisib: 

"Defactinib is an investigational inhibitor of focal adhesion kinase (FAK), a non-receptor tyrosine kinase that mediates oncogenic signaling in response to cellular adhesion and growth factors. Based on the multi-faceted roles of FAK, defactinib is used to treat cancer through modulation of the tumor microenvironment and enhancement of anti-tumor immunity. Defactinib is currently being evaluated in three separate clinical collaborations in combination with immunotherapeutic agents for the treatment of several different cancer types including pancreatic cancer, ovarian cancer, non-small cell lung cancer (NSCLC), and mesothelioma. These studies are combination clinical trials with pembrolizumab and avelumab from Merck & Co. and Pfizer/Merck KGaA, respectively."

Verastem has completed a Phase 3 trial for "its lead product candidate duvelisib, a first-in-class oral dual inhibitor of phosphoinositide-3-kinase (PI3K)-delta and PI3K-gamma, for the treatment of relapsed or refractory CLL/SLL and accelerated approval for the treatment of relapsed or refractory FL."  

Don't ask me to explain since I do not have a clue. It is important for my purposes that the company has filed a new drug application with the FDA, the FDA accepted that filing and granted a priority review:  FDA Accepts New Drug Application for Duvelisib and Grants Priority Review 

If the FDA rejects the drug, then I would have preferred never knowing about this stock. 

The FDA's PDUFA action date is 10/5/18. 

Pipeline: 

Pipeline: Verastem

Last Report: Q/E 3/31/18

Verastem Reports Year-End 2017 Financial Results

10-Q for the Q/E 3/31/18

2017 Annual Report (duvelisib discussed starting at page 9)


B. Bought 50 TCRD at $7.81-Used Commission Free Trade:

Quote: THL Credit Inc. (TCRD)

Closing Price Last Friday: TCRD $7.77 -$0.01 -0.13% 

TCRD SEC Filings

Investor resources | THL Credit, Inc.

TCRD is a micro cap BDC that is externally managed. 

Net asset value per share has trended down since shares were sold to the public at $13 in April 2010.  Final Prospectus

The total average annual return starting on 4/22/10 through 5/16/18 was 3.74%. DRIP Returns Calculator | Dividend Channel As with most other BDCs, it would be impossible IMO to make a rational case for this stock as anything other than a relatively short term trade. Over that same period, the S & P 500 ETF SPY produced an average annual total return of 12.81%.

As of 3/31/18, the net asset value per share was at $10.44. 

5 Year Financial History: 

Page 69 Annual Report for 2017 

Why is a penny paid in "incentive fees"?   

As I have maintained over the years, externally managed BDCs exist to enrich their managers. The trick for mom and pop investors is to profitably exit a position creating a total return in excess of the dividend yield. 

The Board had no choice but to cut the quarterly dividend from $.34 to $.27 effective for the 2016 4th quarter.  

Current Dividend: Quarterly at $.27 ($1.08 annually) 

Dividend Yield at a Total Cost of $7.81: 13.83%

I would never count on a BDC or MREIT maintaining a dividend rate. Once I reach a 4% current yield on a total portfolio basis, I will probably eliminate any remaining BDC positions.  

Last Earnings Report: THL Credit Reports First Quarter 2018 Financial Results and Declares a Dividend of $0.27 Per Share

Net Asset Value Per Share = $10.44, down from $10.51 as of 12/31/17
Discount to NAV at $7.81 Purchase Price: 25.19%
Net Investment Income Per Share = $.27 down from $.29 as of 12/31/17

"For the three months ended March 31, 2018, THL Credit recognized a net realized loss on portfolio investments of $13.1 million, primarily related to a realized loss from the exit of its investments in Aerogroup International Inc. and losses from the initial restructuring of its Charming Charlie LLC investment as part of bankruptcy proceedings." High risk loans made by BDCs will go bad.   

Investments are listed starting at page 7 of the recently filed SEC Form 10-Q.

"At March 31, 2018, based upon fair value, 92.8% of our debt investments bore interest based on floating rates, which may be subject to interest rate floors, such as the London Interbank offer rate, or LIBOR, and Canadian Dollar Offered Rate, or CDOR, and 7.2% bore interest at fixed rates." Page 69-10-Q

Industry Concentrations: 

Q1 2018 Results - Earnings Call Transcript | Seeking Alpha

This company does have two exchange traded SU bonds, each have a $25 par value:

THL Credit Inc. 6.75% Notes Due 11/15/21 (TCRX); Prospectus

THL Credit Inc. 6.75% Notes Due 12/30/22 (TCRZ); Prospectus

C. Bought 5 CPB at $34.65 and 5 at $33.52-Used Commission Free Trades:

Quote: Campbell Soup Co. (CPB)

Closing Price Last Friday: CPB $34.60 +$0.26 +$0.76% 

Campbell CEO resigned suddenly, possible successor identified

Chart: Major Bear Trend

Current Position: 35+ shares

Average Cost Per Share= $40.97

Dividend: Quarterly at $.35

Dividend Yield at Total Cost = 3.32%

Last Ex Dividend: 4/10/18

Reinvestment: Yes at below $45

The dividend may be in jeopardy unless conditions improve as noted below.

Maximum Position: 50 Shares

Purchase Restriction: Small Ball Rule (current purchase limit is 5 shares per trade)

Last Substantive Discussions: Item # 1.B. Bought 5 CPB at $39.81 (4/26/18 Post); Item # 2.B. (3/15/18 Post)

Last Sell Discussion: Item # 3 Sold 50+ CPB at $49.73+(11/20/17 Post)

I am buying back that 50 share lot in small pieces and at lower prices.

Last Earnings Report: Q/E 4/29/18

Among the many troubling matters contained is this report was a $619M impairment charge related to the Campbell Fresh Segment. This indicates to me that the CEO, who retired shortly after the earnings release, and the Board overpaid for acquisitions in this segment which includes Bolthouse Farms and Garden Fresh products. Or, possibly the price paid was reasonable and CPB just mismanaged the businesses after acquiring them (or some combination of mismanagement and overpaying). 

The newly retired CEO bought Bolthouse Farms for $1.55B in cash back in 2012, shortly after assuming that position. Garden Fresh was bought for $231M in 2015. Besides beverages, Bolthouse sells organic carrots and dressings. The $619M impairment charge brings the total write-down for these two acquired businesses to $972M or about 55% of the original purchase prices.  

Revenues for this business segment increased by 1% to $251M, but CPB reported a loss of $19M "primarily driven by a lower gross margin percentage reflecting higher supply chain costs and cost inflation including higher transportation and logistics costs."

While these businesses have potential, the potential may require a new owner or someone new running those businesses at CPB. So far, CPB has proven that it can not manage a fresh food business, though the company has had to cope with periodic adverse growing conditions in California.  

My personal preference would be to unload the Bolthouse fresh carrot and dressing lines and make the other products work under new management. 

I do regularly drink the Bolthouse organic juices (branded 1915: Cold-Pressed Organic Juices). I will buy only when Kroger has a sale. They would be characterized as premium beverages with frequent price mark-downs by companies competing in that space (Bolthouse, Odwalla, Naked Juice and Suja Juice) I believe all of the Suja juices are organic which is not the case for the other brands.

Campbell Soup is struggling to persuade shoppers to buy fresh food-and soup - MarketWatch

Two natural suitors for the Bolthouse beverage lines are Pepsico and Coca Cola. Coca Cola did buy a Bolthouse competitor Odwalla in 2001. The price was $181M.  The Odwalla brands available at Kroger are not organic juices. Pepsico acquired the "Naked Juice" brand in 2011. I consequently do not see those two companies acquiring the Bolthouse line. 

Excluding the products acquired in the Snyder-Lance acquisition, the global biscuits and snacks division reported a 1% organic revenue increase. "primarily driven by gains in Pepperidge Farm snacks, reflecting continued growth in Goldfish crackers and Pepperidge Farm cookies." The Pepperidge Farm unit is one of the jewels and needs to do better. 

The U.S. soup division did not do that bad, with revenues declining 1%. The V-8 juice division is suffering declines as well, and that appears to be unjustified to me. Those juices just need better advertising campaigns IMO. V8® Vegetable and Fruit Juice Flavors Before switching to the organic juices, I would supplement my vegetable and fruit intake with these products. 

"adjusted gross margin percentage decreased 390 basis points in the quarter, falling short of our expectations from a combination of declines in the base business and the mixed impact of acquisitions. First, cost inflation and other factors had a negative impact of 320 basis points. Over 2/3 of that was cost inflation, which, on a rate basis, increased 4.5%, reflecting higher prices on dairy, meat, steel cans and aluminum as well as the higher-than-anticipated escalation of transportation and logistics costs." (emphasis added) Q3 2018 Results - Earnings Call Transcript | Seeking Alpha

The company reduced guidance for the fiscal year which contributed to the share decline:

2. Short Term Bond/CD Ladder Basket Strategy: 

A. Bought 2 Citizens Bank 1.95% CDs Maturing on 11/9/18 (6 month CD):  

Holding Company: Citizens Financial Group Inc. (CFG) 

CFG Analyst Estimates 

Citizens Financial Group, Inc. Reports First Quarter Net Income of $388 Million and Diluted EPS of $0.78 

B. Bought 1 Caterpillar Financial Services 1.9% SU Bond Maturing on 3/22/19: 

I now own 3. 

FINRA Page: Bond Detail (prospectus linked)

Issuer: Wholly Owned Subsidiary of 

Credit Ratings: 

Bought at a Total Cost of 99.575
YTM at Total Cost Then at 2.394% 
Current Yield at TC = 1.9081%

C. Bought 1 Citigroup 2.4% SU Bond Maturing on 2/18/20: 

FINRA PAGE: Bond Detail (prospectus linked)

Issuer: Citigroup Inc. (C)
C Analyst Estimates 
10-Q for the Q/E 3/31/18 
2017 Annual Report 

Credit Ratings: 

Bought at a Total Cost of 99.064
YTM at TC Then at 2.943%
Current Yield at TC = 2.4227%

This purchase replaces a Citigroup 1.75% SU bond that matured on 5/1/18: 

I will limit my exposure to Citigroup SU bonds and will keep the maturities relatively short. I am mindful of this bank's near death experience in 2008. The big banks will invariably be exposed to the shenanigans of the Masters of Disaster who frequently expose their employer to large and inappropriate risks in pursuit of their personal financial gain. 

In this account, I own one 2.05% Citigroup SU bond maturing on 12/7/18 and two 2.05% SU bonds maturing on 6/17/19.

This last one bond purchase brings me up to $4K in principal amount.  

3. Intermediate Term Bond/CD Ladder Basket Strategy: 

A. Bought 2 Carolina Power & Light d/b/a Progress Energy Carolinas 3% First Mortgage Bonds Maturing on 9/15/21: 

Finra Page: Bond Detail

This is a First Mortgage Bond: 

Issuer: Wholly owned subsidiary of Duke Energy Corp. (DUK)  

Duke Energy 2017 Annual Report

Credit Ratings: 

Bought at a Total Cost of  99.691

YTM at TC Then at 3.097%

Current Yield at TC = 3.0093%

B. Bought 2 Welltower 4.25% SU Bonds Maturing on 4/1/26:

Finra Page: Bond Detail (prospectus not linked)

Issuer: Welltower Inc. (WELL) 

Welltower Reports First Quarter 2018 Results

I recently bought 2 Welltower 4% SU bonds maturing on 6/1/25: Bond Detail I doubt that I will buy more until I sell 2. 

Credit Ratings: 

Bought at a Total Cost of 98.741
YTM at TC Then at 4.44%
Current Yield at TC = 4.3042%

C. Bought 2 Vornado Realty LP 3.5% SU Bond Maturing on 1/15/25:

FINRA PAGE: Bond Detail (prospectus linked)

Issuer:  Operating Entity for  Vornado Realty Trust  (VNO)

Unencumbered Debt Warranty:

Vornado Announces Fourth Quarter 2017 Financial Results 

VNO SEC FILINGS 

VNO 2017 ANNUAL REPORT (debt discussed starting at page 126)

This note was originally sold in December 2017 at a public offering price of 99.596% of the $1,000 par value. 

Credit Ratings: 

Bought at a Total Cost of 95.652
YTM at TC then at 4.253%
Current Yield at TC = 3.66%

Equity REIT senior unsecured bonds will generally have a higher yield than bonds issued by a regular "C" corporation with the same credit ratings. 

The reason IMO is that equity REITs are paying common share dividends that frequently exceed GAAP net income and a properly computed free cash flow number. 

The Bond Ghouls look askance at that practice and consequently require a higher yield from REIT bonds than from identically rated companies that are not pass through entities. 

While there is not a retained cash cushion, equity REITs will generally have debt near 50% of their asset value, providing a cushion in their equity in real estate.  

4. Long Term Bond Strategy: Electric Utility Exchange Traded First Mortgage Bonds: 

A. Bought 30 EMP at $24.04-Used Commission Free Trade: 

Quote: Entergy Mississippi Inc. 4.9% First Mortgage Bonds Due 2066 (EMP)

Prospectus

Security:

Par Value: $25

Interest: Quarterly

Yield at $24.04 = 5.1%

Optional Call: At Par Value plus accrued and unpaid interest on or after 10/1/21

Credit Ratings for Entergy Mississippi First Mortgage Bonds:

Maximum Position: 50 shares (very high interest rate risk with a potentially long duration) 

I may wait for a less than $20 price before buying the other 20 shares. 

Last Discussed: Item # 2.A. Sold 50 EMP at $24.47 (7/22/17 Post)-Item # 2.B. Bought 50 EMP at $22.85-A Roth IRA Account

Most of my long term bonds are $1K par value Tennessee municipal bonds.  

I also own Entergy Mississippi $1K par value first mortgage bonds maturing in 2023. Bond Detail

Financial information about Entergy Mississippi can be found in Entergy's (ETR) Annual Report starting at page 356. 2017 ETR Annual Report 

ETR Stock Price - Entergy Corp. Stock Quote (U.S.: NYSE) 

Entergy Mississippi - Service Area

Disclaimer: I 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.