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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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A good dividend/value stock right now is AYR Aircastle.
This is an airplane leasing company. They buy mainly used airplanes and lease them to airlines all around the world. The initial purchases of airplanes are made with cash/equity, and they then sell asset backed securities for portfolios of their owned planes. Their combination of sophisticated financing and airline contacts is a strong competitive advantage (in a competitive industry). They are profitable (P/E around 10-11) and earnings are growing quickly (net income 51 mil. in 2006, 127 mil. 2007). Best of all, they finance deals with equity as needed and return earned capital to their investors through dividends - current yield based on the most recent regular dividend is around 14%! They missed analysts earnings last quarter, and the stock is pretty beaten down as a result. The current price (about $20/share) is a good price for a good stock. Vasco data security international (VDSI) is a leader among specialized data-security shops. Good security is the key to e-comerce and e-finance, and these people get the big contracts. Recent earnings were a big miss - according to management, this is a result of three major contracts moved to 2008. With a smallish company dependent on large contracts from industry giants, lumpy revenues are to be expected, and as long as management is shooting straight, a few delayed contracts are no big deal. Also, the current financial disaster will likely have some impact on this years earnings, as the main clients are large financial firms, which will all be looking to cut costs where possible. These caveats out of the way, the current price is almost too good. Return on equity has averaged 30%+, and earnings growth is around 50%/year. The internet is not going away, and will become increasingly fundamental to all financial transactions - and the need for data security will not go away, either. This is a well run company with excellent prospects for growth, and is currently on sale. I've made $$$$ shorting FSLR, and if it recovers significantly any time soon, I'll buy deep out of the money puts with distant strikes. The reason I'd do this is that they need huge growth to justify a 100+ P/E, so any hint of a recession will hurt them and a single quarter of missed earnings will absolutely kill the stock - it's a great company, but priced to perfection.
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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Big problem for a lot of companies right now (look at TMA!) is that they have short term liabilities and long term assets. The assets are selling at depressed prices, which leads to margin calls - and BOOM!, a company (hedge fund, whatever) is gone, bankrupt - whoever buys the assets eventually makes a killing.
This is the exact same thing that killed LTCM 10 years ago - the assets were valuable, but they couldn't meet their short term obligations because of market chaos. Buffet bought some of their assets with cash at seriously depressed prices, and guess what? When the market chaos subsided, the prices recovered and he made a ton of money. I haven't looked too closely at the financials of NLY or CMO (very similar company) yet. If they're highly leveraged and subject to margin calls, there's a not-insignificant risk of either one going to 0 in the next year (I doubt agency debt is really as safe as the market thinks right now). In other words - unless you do your homework, don't buy back in at a lower price. I'm also looking carefully at AYR, the airline lease company I recommended above - the price is falling. and the controlling company (FIG) might be in serious trouble. Also, they have some (not a huge amount) of short term debt against all long-term assets, so I need to decide whether to sell and take my (pretty small) losses or hold on for the ride. Another speculative company I own shares in now is PRS - Primus Guarantee. The main business of this company is in selling credit default swaps on investment grade companies. They have taken some losses on swaps related to residential mortgages, but have very limited exposure left - most of their questionable exposure is to financial companies - if too many of these go bankrupt, it will kill PRS as well. However, if you believe that the current pricing in the debt markets is currently irrational, this is a risky stock worth considering. The reason is simple - although it's highly leveraged, it's not subject to margin calls. No matter how expensive its liabilities become on the open market and how huge its GAAP losses become (currently, the GAAP book value is around 0, but the company claims its economic book value is around $9/share not counting unearned premiums), PRS won't get called. In addition, they can continue to assume corporate default risk at today's attractive rates. At the end of the day, I consider it likely that TMAs assets will be vastly more valuable than it's liabilities - but since it's liabilities are short term and can be called, the banks will get it's "valuable" assets at vastly deflated prices and the stockholders of TMA will very likely get nothing. This cannot happen to PRS, because there is no time mismatch between their liabilities and assets - if they go belly up, it will be because their assets really are bad, and not because of the current flight to safety. I am long PRS, but please don't invest any money you can't afford to lose here.
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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Another related note -
There is currently a huge mismatch between the credit markets and the stock market. The stock market's down a bit for the year, but's not really doing all that badly. On the other hand, I'm going to suggest that any believer in the efficient market hypothesis look away from credit spreads - they are pricing in massive defaults on anything that can default. They are also pricing in massive contagion - looking at the prices, you might believe that as soon as one company defaults, it will cause the end of the world as every other company in every industry goes belly up. IMO, the most likely reason for this is that banks and other institutions are being forced to unload safe assets at fire sale prices. This drives down those assets, further eroding the assets on their balance sheets, forcing them to sell more, which drives the prices down, again. This is certainly what's likely to happen with TMA - their assets have lost value, and now, as a result, they have to dump billions of dollars of these assets on the market. I doubt that will raise prices in the short term. If this thesis is correct, there are clearly opportunities out there for cash, non-levered buyers who can stomach massive paper losses (since who knows where prices are heading short term, regardless of the long term outcome) - it's just a challenge for the individual (particularly non-accredited) investor to figure out how to grab these assets - most are only available to institutions, and it's hard to figure out who's buying the right ones safely and how to get your money to them. If my thesis is wrong, then the best investments are canned food, bottled water, and ammunition. (not really - spreads and correlation aren't that bad, yet...)
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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On second thought, I don't think Congress will allow FNM/FRE mortgage bonds to default, and I doubt that prices will fall much further on these bonds in the near term, so I went ahead and bought some NLY at 14.65 this morning.
I also bought some CMO at 11.01. These companies are levered 10-1 rather than 30-1 for the blown-up Carlyle fund, so they should survive (I hope and expect). Edited by phi1618 (03/10/08 09:14 AM)
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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Quote: I bought more CMO late in the day, bringing my cost basis to about 10.80. CMO is now at 12.35 and NLY is at 16.86. Not a bad first day for this trade. FNM and FRE are a scandal waiting to happen, but for now thank the FED, pawn broker extraordinare.
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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I agree - the fundamental credit problems remain, and this is more likely to be a bear market rally than the end of the bear market.
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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Yeah - I found out about the FIG element after I had already lost a good amount of money on the trade. Not only is FIG under pressure, their management is not known for looking out for the interests of passive minority shareholders. Oh well... I just didn't understand the risks.
On point 1: AYR usually finances new buys using warehouse loans and cash, and then pays off the loans by issuing new stock or creating a structured credit vehicle secured by a portfolio of planes, which has worked pretty well in the past for getting long term financing at a very reasonable rate. Right now, they have one significant (I think 750 million, but that's just from memory) short term obligation in a warehouse credit line that expires in Dec. 2008 that they will need to refinance to a longer term loan over the summer - a recent shareholder presentation (on their website) indicates that they anticipate a much higher interest rate on whatever financing they acquire than they were able to get from previous securitizations - their financing is affected by the collapse of the structured credit markets. Based on the balance sheet and business plan, I think this is an under priced stock. The dividend should be announced this week - based on the funding troubles, I wouldn't be too shocked to see it cut (though, if FIG's having real trouble, you can bet the dividend will be high to get as much cash out of AYR as possible whether the underlying business can support it long term or not). Right now, it's trading around book value, which is a real steal based on fundamentals alone. Anyway, I've kept buying on the way down - here's hoping to a large dividend and massive short squeeze. I also have a much smaller position in GLS in the same sector - it's hemorrhaging money at a much slower rate.
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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TIPS are inflation indexed treasury bonds - currently, they offer negative yields - that is, buy a $1000 bond today, get $990 + inflation back next year. It's safe, but there's gotta be a better place to put your money.
Bear market funds are market and sector ultrashorts - like SDS is "UltraShort S&P 500 proshares" - this means, it should move in the opposite direction as the S&P 500, and by double the amount. There are other ultrashort proshares funds - including some for sectors, like housing or financial. Search "Proshares". Commodities are rising super-fast right now. If you want to invest in commodity funds or ETFs, you can - like GLD is an ETF that holds a bunch of physical gold (I think) - other people probably know more.
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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Crazy market - BTW, there is continued chaos in the credit markets that makes me think we haven't seen the worst in the stock market - this schizophrenic behavior could continue for some time, so be careful.
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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FSLR has gone up to around $300/share. I think it's grossly overpriced - the growth is great but the technology isn't likely to be the long-term thin film winner and the p/e is 150+. The current profit is due to gov't subsidies.
I'm thinking about buying some puts, but the premium is stupid-high. I'd like to short it, but it's just dangerous. Most of the shares are held by GS and other large investors, and the public float is pretty small. Until there's disappointing earnings or an institution starts to unload the shares, this will be a super-volatile stock with a lot of upside potential. Eventually, it will come crashing down. Overall, I've decided to not get involved - it's just too chancy on either side for my taste.
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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Actually, inflation is falling and the dollar is increasing in value.
Long term, I figure commodities will recover - I buy the argument we are in a secular bull market for commodities with some distance left to run. Short term, I think both the spectacular run up in the first part of the year and the current crash are related to the credit crunch - first, it drove the shorts out of the market, now it's driving out the longs. Anyway, deflation is currently a bigger worry than inflation; tomorrow, who knows?
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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This morning I bought some GM and GMAC bonds.
GM Bond 7.2% 01/15/11 bought for 34.75 GMAC Bond 5.85% 01/14/09 for 88 I don't think the automakers really should be bailed out, and I doubt any bailout will really return them to profitability and assure their longterm survival. That said, I believe a bailout is coming - the Democrats control congress and Obama said as much in his recent speech. This might not help holders of common stock, but it should be good for bondholders. If a bailout doesn't help the company raise private capital, what good is it?
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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Quote: The volatility now is so high, it's terrifying. The nearly 1000-point intra-day range in the DJI index Thurs. was about the same as the intra-year range (in terms of size, not value) in 2005. Scary, scary, scary. That said, I'm still long - Genworth not withstanding, I've been paying dearly for my belief that there are great deals to be had. It seems that the markets are creating the economic conditions that will justify their values... not good.
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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Quote: from the horse's mouth... in 1983 (bold added, italics in original): Quote: in 1995: Quote: 1996: Quote: In many of his essays, Buffet makes the point that the total returns to all stock holders must in the long run revert to the returns of the underlying business. All trading activity reduces the total size of the earnings pie available to shareholders (business owners). It is his goal to attract shareholders interested in the underlying business, and to maximize their long-run returns by minimizing the frictional costs of trading. Edited by phi1618 (03/13/09 10:15 PM)
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old hand ![]() Registered: 02/14/04 Posts: 4,102 Last seen: 13 years, 8 months |
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Here is Buffett on trading, 2005:
Quote: That said, I trade actively. Edited by phi1618 (03/13/09 10:22 PM)
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