Taking Stock - Part 2

Taking Stock - Part 2

Now to continue my ramblings that I started yesterday. The genesis was that I am at an all time in cash (on a dollar basis).  So this is a good time to run through all my open positions (which I hypothetically know relatively well) and decide if I want to put more dollars at work before looking to new positions.  The analogy is that you should put money in your 5th best idea before you put it in your 20th best idea.

 I think with each stock I will provide two scores and a letter grade: (1) for what I perceive as upside 18 months from now and (2) what the riskiness of the stock is.  I will score them 1 to 5 in each category with a 1 being the top score. Then the letter grades are: (A) means I would buy more right now, a (B) means I would buy more on a pullback, a (C) means hold, (D) means sell on a nice upwards move, say 10%+ and (F) means sell right now. Here are my current 37 holdings:

Stock	Avg Cost	Current          Price	Dividends	Gain per            Share	Pct Gain	Pct                   of        Portfolio
GTAT	3.39	12.11	-	8.72	257.2%	7.8%
GNW	7.10	15.21	-	8.11	114.1%	6.3%
KLIC	11.41	11.55	-	0.14	1.2%	4.9%
BBEP	16.16	21.08	1.05	5.98	37.0%	4.5%
INTC	22.25	24.42	1.42	3.59	16.1%	4.2%
RPXC	16.36	16.10	-	(0.26)	-1.6%	4.2%
AOD	7.93	8.27	0.58	0.92	11.6%	4.1%
NTC	12.00	12.04	0.06	0.09	0.8%	3.7%
ATVI	17.39	19.72	-	2.33	13.4%	3.6%
TGONF	10.27	10.61	0.19	0.52	5.1%	3.4%
CSQ	8.60	10.99	1.64	4.03	46.8%	3.4%
MBUU	17.50	18.35	-	0.85	4.9%	3.4%
C	51.52	48.26	-	(3.26)	-6.3%	3.3%
TC-PT	15.39	15.82	1.42	1.86	12.1%	2.9%
SBS	9.54	9.38	-	(0.16)	-1.7%	2.7%
CS	28.75	31.47	-	2.72	9.5%	2.6%
CF	185.70	242.97	2.38	59.65	32.1%	2.5%
SIRI	3.73	3.61	-	(0.12)	-3.2%	2.5%
FSC	9.64	9.71	-	0.07	0.7%	2.1%
BAC-WTA	5.35	7.11	-	1.76	32.8%	2.0%
SNDK	70.20	74.80	-	4.60	6.6%	1.9%
KLAC	61.35	64.97	0.45	4.07	6.6%	1.9%
HIG-WT	21.24	25.47	-	4.23	19.9%	1.9%
AGX	15.60	28.20	0.75	13.35	85.6%	1.9%
FGL	20.08	20.41	-	0.33	1.6%	1.9%
GA	8.96	11.38	0.23	2.65	29.5%	1.8%
WNR	39.80	38.98	0.26	(0.56)	-1.4%	1.8%
SYNA	48.01	62.27	-	14.26	29.7%	1.8%
RDA	9.74	18.04	0.10	8.41	86.3%	1.7%
RIOM	2.26	2.40	-	0.14	6.2%	1.6%
AVG	17.22	18.46	-	1.24	7.2%	1.5%
FLR	66.06	79.19	0.32	13.45	20.4%	1.2%
NVDA	13.85	18.64	0.24	5.03	36.3%	1.2%
O	20.46	43.41	15.05	38.01	185.8%	1.2%
OIBAX	4.99	6.05	1.93	2.99	59.9%	1.1%
CYOU	29.24	28.87	-	(0.37)	-1.3%	0.9%
IEV	46.28	48.08	-	1.80	3.9%	0.7%

CSQ - this is another closed end fund.  If my readers want to research closed end funds on their own, here is the link I use (CEF Connect). I like Closed End Funds as they often sell at a discount to their NAV, while a mutual fund trades at the NAV. Closed end funds do often use leverage and they may also "manage" their distributions. CSQ trades at a 10.7% discount to NAV, while over the past 52 weeks, it has averaged 8.6%. So right now they are a discount of a discount. CSQ holds equities, Convertible Stocks and Bonds and trades in and out of positions. It seems to have a bent towards financials (C, JPM and WFC are three of top ten holdings). They are 27% leveraged and they have management fees of 1.8%. They do pay a 7 cent monthly distribution (which I automatically reinvest), that works out to 7.6% yield.  But about 1/2 of that is really return of capital as opposed to income.  I do not see a ton of upside, maybe a bit over $12 assuming they erode the discount. But add that to the 7% yield and it is a respectable number.  Upside: 3 and Risk: 3. Overall Grade: B.

MBUU - I was surprised these guys were #12! This is part of my "post IPO" initiative, where I buy stocks a day or so after their IPO.  These are generally my most speculative positions, really depending more on momentum as opposed to value. So far, I have done very well with this approach. My total $ gain on the 6 stocks I have bought this way is just north of $25,000 (with my multiplier). Malibu Boats is a #1 seller of high performance boats.  They are actually relatively cheap (compared to many IPOs) and trade at about 22x trailing earnings. They expect to have 22% growth in sales for 6 months ending December 2013 over the prior year.  I can tell you, there are not many companies trading at 22x earnings that are growing top line 22%! They made 65 cents a share for yar ending 6/30/13. They made 19 cents a share in Qtr ending Sept 30th. For people who are interested in IPOs, the best data source is sec.gov.  Then put in the ticker symbol (or company name) and find their S-1 filing.  I think MBUU can go to $22. Upside: 2 and Risk: 3. Overall Grade is a B. (I am noticing that many of my stocks are a "B". Kind of makes sense, if you like a stock - you should generally be willing to add more on a pullback).

C - Good old Citigroup, the stock everyone loves to hate. Of the too big to fail banks, they always seemed like the worst.  Frankly, when I read Sheila Bair's wonderful book (Bull by the Horns), she insinuated that most of the tarp bailout was really for AIG and C.  The other guys were not that bad.  So C still trades at a discount (their price to book value is .74, while WFC is 1.55 and JPM is 1.08). They have had bad top management.  I am not 100% convinced the new guy is "great", but he is at least an improvement. Barron's is very bullish (Citigroup Seen as Top Big Bank for 2014). They do have more emerging markets exposure than their peers. This used to be a positive, but now seems like an anchor. But I believe that sentiment will swing back. Also, at some point the Federal Reserve will allow them to increase their dividend (from a penny) and start buying back shares (at 74 cents on the dollar a bargain). So there are strong potential catalysts. I can be patient.  I think the stock has upside north of $60. There are some risks of them having to pay fines (a la JPM), but they do have reserves set for that contingency.  Upside: 1 and Risk: 3.  Overall Grade A.

TC-PT - This is a unique holding of mine (I guess I have several).  They are called "T-Meds" and were issued by Thompson Creek Metals. They pay a quarterly dividend of about 40 cents a share. As they trade right now at $15.87, mental math implies a dividend a bit above 10%.  They are quite ill-liquid.  They are convertible into TC stock at a ratio of 5.4, so they will often trade about 5.4x higher than TC.  Here are the "rules as I laid them out (MFI Diary: Arbitrage Anyone?).

Unless settled earlier at the holder's option, each purchase contract will automatically settle on the mandatory settlement date of May 15, 2015 and we will deliver a number of shares of our common stock, based on the applicable market value. The applicable market value is the average of the daily volume weighted average prices, of our common stock for the 20 consecutive trading days ending on, and including the third trading day immediately preceding, May 15, 2015. On the mandatory settlement date, each purchase contract will settle, unless earlier settled, as follows (subject to adjustment):

•  if the applicable market value is equal to or greater than $5.45, you will receive 4.5855 shares of common stock for each purchase contract; 

•  if the applicable market value is less than $5.45 but greater than $4.64, you will receive a number of shares of common stock per purchase contract equal to $25, divided by the applicable market value; and 

•if the applicable market value is less than or equal to $4.64, you will receive 5.3879 shares of common stock for each purchase contract.

At any time prior to 5:00 p.m., New York City time on the third scheduled trading day immediately preceding May 15, 2015, you may settle any or all of your purchase contracts early and we will deliver you a number of shares of our common stock per purchase contract equal to: (i) if you settle purchase contracts prior to 5:00 p.m., New York City time, on November 10, 2012, 4.3562, which is 95% of the minimum settlement rate, and (ii) if you settle purchase contracts commencing on November 11, 2012, 4.5855, the minimum settlement rate, subject in either case to adjustment as described under "Description of the purchase contracts—Adjustments to the fixed settlement rates." In addition, if a fundamental change (as defined in this prospectus supplement) occurs and you elect to settle your purchase contracts early in connection with the fundamental change, you will receive a number of shares of our common stock based on the fundamental change early settlement rate, as described herein. Except for cash in lieu of fractional shares, purchase contracts will not entitle holders to any cash distributions.

The amortizing notes will pay you equal quarterly installments of $0.406250 per amortizing note (except for the August 15, 2012 installment payment, which will be $0.424306), which in the aggregate will be equivalent to a 6.50% cash payment per year with respect to each $25 stated amount of tMEDS. The amortizing notes will be our senior unsecured obligations, and will rank equally in right of payment to our existing and future senior indebtedness, including the 7.375% Senior Notes due 2018 and the Senior Notes due 2019 offered concurrently with this offering.

Of course, there are some institutions saying TC is headed towards bankruptcy (Thompson Creek faces solvency issue – TD). I do not see that. I see potential cash flow issues in a worst case scenario. But they do have ways to raise extra cash if needed through sale of assets. They just announced earnings on Friday (Thompson Creek Metals Company Achieves Commercial Production at Mt. Milligan and Reports Fourth Quarter and Full Year 2013 Financial Results). So while they are cash flow negative, they are taking adult steps to address that and the Mt Milligan project is starting to generate revenue, which should alleviate the pressure.  So this is a bit of a risky stock.  Always hard to tell who is right. But there is significant upside (say $20). So I score as a 1 for upside and a 4 for risk. My grade is a C. If I did not own a pretty large amount, I would be willing to buy at current price though. So the C is a personal grade based upon my holdings.

SBS - this is a water utility in San Paulo, Brazil. It has been under pressure as frankly anything with a whiff of EM exposure has been dropping.  As the USD strengthens against the Brazilian Real, the share price would also drop (all else being equal). If you look at a one year chart, the exchange rate has gone from 1.98 to 2.39. So in past year, you would expect an 18% price decline, just from fx.  If you look though, SBS is down 40% in that stretch. The utility is worth $6.4 billion. They made $990m in year ending 12/31/2012. Reading through everything, it seems their profit will be about 20% lower in 2013.  So that kind of explains the 40% price drop, between the earnings drop and the exchange rate. As I read everything, one of the issues (and this is often the case with International companies) is that a large portion of SBS is owned by the government. And the price SBS is allowed to charge is tightly regulated. It seems that for 2014, their increase is not keeping pace with inflation (5.5% versus 6.3%). The more I read, the less I like the stock. I would score a "3" on price and a "4" on risk.  This will get a letter grade of D. I may sell on next uptick (I bought at $9.54 and it trades at $9.38). Now you know why I do this.

CS - well, as you know I just got back from Switzerland. I can tell you there is absolutely no hint of economic problems there.  High employment, lots of construction and high standard of living. I bought CS back in November around $28.75 when they dropped on rumors of higher capital charges.  I wanted them as exposure to the rebuilding of Europe.  They are a safeish play, I am up about 9.5% since jumping in.  My runner-up pick was IRE (Bank of Ireland).  That was the riskier play. IRE is up over 30% in same stretch.  I think CS still has room to improve. They trade at 1.09 of book value.  I think they can get to 1.30 as Europe recovers. Analysts have them trading about 11 or 12 x 2014 earnings. And then growing earnings more than 10% in 2015.  Not super sexy, but $40 share price is not out of reach. So I have a 1 for upside and a 2 for risk.  My grade is A.

CF - My favorite fertilizer company. They just had a strong earnings report (Why CF Industries (CF) Is Gaining Today).  One of my worries about CF was the increase in natural gas costs in past six months. But CF has hedged that partially for next couple of years, so that mitigates the issue. I own CF in two of my MFI tranches (May and August). They still seem quite reasonably priced to me. If everything went well, perhaps $40 of upside to $280. Upside: 3. Risk: 2.  Grade of C.

SIRI - I bought SIRI back in January when Liberty bid $3.85 for them (I got in at $3.73).  That stock has languished since then and is at $3.61. I fully expect Liberty to come back with a higher offer, north of $4. So my view is that this is just a waiting game. Upside:1 and Risk: 4 (should bid not come). Overall grade is B.