Taking Stock - Part 3

Taking Stock - Part 3

Welcome to part 3 of mt taking stock series as I really have nothing better to do as I am on crutches and trying to keep my leg elevated. I have reviewed 18 of my stocks/securities already. As a reminder, I am 31% in cash and in dollar terms I have the highest cash amount ever.  So I am reviewing all my current holdings to decide if their are candidates to put extra dollars to work.  I may also buy two or three new stocks (PM looks very tempting).

I am reviewing the securities in descending order.  So at 18+, we are definitely getting into my smaller holdings and I will likely have less to say (amazing but true). I am scoring the potential upside and riskiness of each stock (1 to 5 with 1 being the best) and giving each security a letter grade, (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%

Finally, I remind everyone to do their own due diligence.  I am just a drone with a computer.

FSC - this is my newest position, bought this past week. BDCs are involved with providing lending and funding to medium and small businesses. They are trading at $9.71.  As of year end, their NAV was $9.85.  They pay a $1.00 dividend in monthly installments.  If they are trading over NAV and you reinvest your dividends, you get a 5% discount. They are expected to make $1.04 and $1.07 the next two years, so they would cover the $1.00 distribution. There is risk if the economy collapses that the firms will not be able to meet their obligations, but so far BDC have had a pretty good track record. I rate as a 3 for upside and a 3 for riskiness. My letter grade is a B.  If they pulled back 3 or 4% I would likely add as this is not a huge position. But in some ways, you can compare with my NTC, which has a 5.7% tax free yield. It is not a slam dunk that you'd want the higher yield given the higher risk.

BAC-WTA - these are TARP warrants associated with Bank of America. Like my tMeds, these are a bit complex.  The warrants essentially allow me to buy BAC stock on January 16th, 2019 for $13.30 a share.  Since BAC right now is trading at $16.29; you can see I am about $3.00 in the money. Now the major complexity is the treatment of dividends.  The excess of annual dividends over 4 cents a share (where the dividend is currently) will directly reduce the $13.30 strike price. So if we model that BAC will start an annual dividend of 24 cents a share, then that would drop the strike price 20 cents a year. Over five years, that would be $1.00, so the strike price would become $12.30. There are many potential outcomes. But if you assumed BAC goes up an average of 10% a year and they implemented a 24 cent annual dividend, then the warrants would be worth $13.68 at the end (current price is $7.11). Now that is 14% growth in warrant value per year; so you are getting rich kind of slowly (but steadily). Now if you assume BAC goes up 15% a year, then you are at $20 value at the end, which is 22% growth per year.  So at the end of the day, this is really a levered play on BAC stock price. +10% per year ==> +14%. +15% per year ==> +22%.  Obviously if BAC stock price falls back, you fall back more. To me, basically a bet on the US economy. The time frame (still 5 years) is long enough that I am very comfortable with the risk. Upside: 2 and Risk: 3. Overall Grade: B.

SNDK - this was an add for me in my February 1st MFI tranche.  You can tell this has been a successful tranche for a single position to rank #21 for me. I really like the company and their products. Flash memory is the way to go. Anyone who used a computer with a disk drive and switch to solid state knows you will not want to back. In addition, it is the memory of choice for phones and tablets.  And in my view, SNDK is the leader. They grew top line 20% last year. They are expecting 10% growth in 2014.  They trade at 12x projected earnings. They also have a strong balance sheet.  They will be a strong contender for a second tranche in May.  Upside: 1 and Risk: 2. Overall Grade: B.

KLAC - another February 1st MFI buy. Obviously I like them as I bought less than a month ago. They are trading at 14x next year's earnings, pay a nice 2.8% dividend and have a great balance sheet (2.9b in cash and 750m in debt). I do think there is potential for capex spending to increase as economies improve, so I like where they are in cycle and see decent upside.  They also will be a strong contender for a second tranche in May.  Upside: 2 and Risk: 2. Overall Grade: B.

HIG-WT - these are more TARP warrants. They work virtually identically withe the BAC warrants I just described. My calculation of current strike price is $9.09.  I have that being eroded by quarterly dividends exceeding 5 cents.  Unlike BAC, HIG is now paying a dividend in excess of the minimum (15 cents right now). So every quarter, the strike price will drop a dime. These warrants have a slightly longer window, until June 29th, 2019. Pretty much the same math, I project 10% annual growth in HIG (assuming no more changes in dividend) would give 14% annual growth in warrants. 15% growth gets you 19% in warrant growth.  So it is not as levered as the BAC.  Not sure which of the two I like more, that is why I am relatively equal weight in both groups of warrants. I'd say HIG is a bit less risky, while BAC has the greater upside.  Upside: 4 and Risk: 2. Overall Grade: B

AGX - Small construction firm. I love their space, they are building natural gas power plants near the sources of natural gas. they seem to have a solid niche.  Their revenues will always be a bit bumpy due to size.  They have a decent backlog.  I am expecting current quarter to not be so good, which may cause a sell-off (which would be a most-excellent buying opportunity). They pay special dividends and have a great balance sheet. Upside: 3 and Risk: 3. Overall Grade: B

FGL - Like MBUU, FGL was a post IPO purchase.  After I read their year end earnings release, I decided this was actually a good long term hold (Fidelity & Guaranty Life Reports First Quarter Fiscal 2014 Results). They are making decent money, they trade under book value and they are growing.  What is not to like? They are relatively light traded, so use limit orders. Upside: 2 and Risk: 2. Overall Grade: A.

GA - This is an online Chinese gaming company. I have done very well with them. They have a buyout bid at $11.75. Not much more to say except I will miss them when they are gone.  Upside: 5 and Risk: 1. Overall Grade: C.

WNR - This is my re-entry into the refining space after doing very well with HFC and MPC in 2012-early 2013. Like SNDK and KLAC, this is part of my February 2014 tranche.  Refiner stock are all about the margins and crack spreads.  Here is table showing where they have been (a chart of this spread here). WNR looks very cheap, but always worried about sustainability.  However, I think a measured amount of stock in this space is a good idea.  I will certainly consider adding in May as well. Upside: 3 and Risk: 3. Overall Grade: B.

So, after three parts, I have FGL, KLIC, AOD, TGONF, C and CS as getting an A. RPXC and SBS are the two I would consider selling (though RPXC is in hold for a year category).