Citi rally leaves Thornburg behind
FORTUNE: Daily Briefing Citi rally leaves Thornburg behind «
Here on this blog I was a big fan of Thornburg Mortgage (TMA: 0.73 +0.02 +2.82%) surviving the mortgage meltdown and making investors a bunch of money. Then in March they got hit by margin calls that basically wiped out the assets of the company. To save the company, management sold $1.3 billion of bonds with options to buy 90% of the company for 1¢ a share. It appears the company is now diluted down till its value is around the buck the stock is trading for.
I have no idea where Thornburg Mortgage will go from here. It seems like it will be a long time for the company to get profitable enough to start repaying the financial hole they have dug to survive. (terrible metaphor!). I still hold a small, almost worthless position in TMA, so will hold on and see what happens. I am not counting on a fast turn around!
Changes coming here
I am planning to make some changes to the organization and type of posting I am doing here. First, the stock tracking will be changed. Six months ago I started a 20 Stock Portfolio here to track stocks that I was interested in or invested in or thought would be good investments. I picked 20 because I believed that is a number of companies/stock a part time investor could get a good handle on. As I built up the 20 stocks I found my interests fall into two distinct camps of stocks. Going forward I am going to divide my stock tracking on this site into 2 portfolios.
One area of interest is income stocks. To me, these are companies and stocks that pay well above average dividend payouts. I am talking about stocks that pay 8%, 12% or even higher. The challenge with these companies is that by allowing the dividend rate to be so high, the market is assuming there is a high degree of risk that the payout rate will not continue. My challenge is to attempt to determine/guess if the dividends will continue or even better increase.
The second type of stocks are those I will call growth stocks. I look at several factors that I think will give a stock market beating performance. First, I love unfollowed stocks. If they have 1-3 analysts predicting their future, the odds of them accurately predicting the future are slim. I like a classic growth stock, whose earnings and revenues are growing significantly faster than there PE would indicate. In this case the market does not believe the growth is sustainable. Gigamedia (GIGM: 18.83 -0.04 -0.21%) is a good example of this type of company. I am also interested in turn around plays where a company’s earnings have fallen on hard times and the company is taking steps to get back on track. Headwaters (HW: 11.44 +0.29 +2.60%) and Tetra Technologies (TTI: 19.69 +0.31 +1.60%) fall into this group. I also have a strong interest in smaller cap international companies, especially those based in South America as I have additional interest and knowledge about that region.
Sometime over the next few days I will start dismantling the 20 Stock Portfolio and setting up an Income Portfolio and a Growth Portfolio. Right now I will continue tracking the portfolio stocks on an equal dollar weighted basis and updating quarterly. The current components will be the ones from the old 20 Stock group minus the ill fated Thornburg Mortgage (TMA: 0.73 +0.02 +2.82%).
Last note: I am going to try to generate more commentary on topics of general investing interest. I will still try to give good analysis of the stocks that interest me, but I want to broaden what I am writing about. So if you are not a regular reader, I hope these new changes tempt you to become one.
Nordic American Tanker to boost dividend
I enjoy the straight forward approach that Nordic American Tanker and their CEO, Herbjørn Hansson take to their business. Mr. Hansson will issue a letter letting us all know the state of their business well before the official earnings report comes out. He has just released this letter with good news concerning first quarter results and the dividend.
The letter states that spot rates for their tankers have been good and the first quarter dividend will be over $1.00. This will be a nice change from the last two dividends of 40¢ and 50¢. Official earnings and dividend declaration will be in early May.
Nordic American does not try to do anything fancy with their business, stock or dividends. Their fleet of tankers is managed to have very low overhead, they lease only in the spot market and the majority of earnings are paid out as dividends each quarter. The tanker fleet has grown over the last several years and they should continue to add new ships. The dividend can fluctuate tremendously with spot tanker rates. Mr. Hansson believes the spot market will give the best returns over time and that is where the company places 100% of their efforts.
Investors and money managers looking for steady results should stay away, but I find the company very intriguing and an investor with a longer term investment horizon can definitely pick up discounted shares when the dividend is low and reap the rewards when spot rates pick up.
A few months ago, I found this video from CNBC very entertaining. If you know anything about NAT it is filled with errors.
Note: I currently do not have a position in NAT.
Good news at VeraSun Energy - stock goes down
VeraSun Energy (VSE: 6.19 -0.01 -0.16%) had a pair of news releases that I would categorize under good news, or at least neutral, and the stock was beaten up pretty good. First, the merger with U.S. BioEnergy was approved. The press release is here. The dollar value of the merger has definitely fallen, but VeraSun picks up some significant assets.
U.S. Bioenergy had fallen to negative profitability (i.e. losses) by the last quarter results. VeraSun is still generating profits and I expect them to improve the efficiency and assets of the acquired plants.
The other press release is here. This one announces the completion of an ethanol plant in Ohio that brings VeraSun’s annual production capacity over 1 billion gallons. For comparison, VSE shipped 353 million gallons in 2007. The company is still in a strong growth mode as far as production goes.
I also have a few points concerning the ongoing viability of corn ethanol as an alternative fuel. There has been a lot of press lately concerning the value of corn ethanol. In my opinion it is the only significant quantity, U.S. produced, non-oil, vehicle fuel that will be available for several years if not longer. On to my points:
- Almost all of the cars currently on the road, all built since 1999, are certified to run on ethanol blends of up to 10% (E10). Ethanol is the only current way to significantly reduce petroleum use for vehicles currently on the road.
- Many cities mandate E10 gasoline to lower carbon monoxide emissions to meet federal clean air standards. Since it was discovered that MTBE loves ground water, ethanol is currently the only gas additive that reduces emissions.
- Three states have mandated E10 minimum for all gasoline and others are considering similar regulations. In 2007 the California Air Resource Board (CARB) passed regulations that all gas sold in California will be E10 or greater by 2010. California will require at least 1.7 billion gallons of ethanol per year to meet the mandate.
I have written in the past that I believe VeraSun Energy will become a major producer of ethanol on a profitable basis. Their low cost structure allows them to be profitable even when crush spreads are tight and they will make a lot of money if/when the crush spread spreads.
Note: I currently do not have a position in VSE.
Quarterly Portfolio Review-It Sucked!
The first quarter of 2008 is behind us, thank goodness, and this is my review of this site’s 20 Stock Portfolio. I started the portfolio on this blog to track stocks that I am interested in and/or invested in. 20 was picked as a comfortable number to keep track of and be a semi-expert on. I track to 20 stocks for each quarter on an equal dollar weight basis. Right now I am seriously considering breaking up the portfolio into separate income and growth sections to further focus on the two types of stocks I am interested in. First, the overall performance of the portfolio:
The portfolio finished the quarter with a return of negative 12.08% for the 3 months. The 0.75% earned in dividends had negligible effect on the overall return. My -12% fits neatly between the S&P500, down 9.9% and the NASDAQ, off 14.1%.
Although 13 of the 20 stocks in my portfolio were negative for the quarter a majority of the actual overall loss came from just two stocks: Thornburg Mortgage (TMA: 0.73 +0.02 +2.82%) is flirting strongly with bankruptcy and has lost 87% of the value it started the quarter with. And Thornburg was up 50% at one point in February. Number 2 on the list of dogs is VeraSun Energy (VSE: 6.19 -0.01 -0.16%) which shed 52% of its value. VSE has been hit by high corn prices and negative sentiment concerning ethanol as an alternative fuel. With TMA and VSE starting the quarter as 10% (2 of 20) of the portfolio, they managed to be responsible for almost 7% of the loss on the total portfolio.
The next two on the loser hit parade come from opposite sides of the stock spectrum. Number 3 dog, Terra Nitrogen Co. L.P. (TNH: 149.53 +1.49 +1.01%) was down 22% even as grain prices kept rising (TNH is in fertilizer) and the company sports an eye-popping 15% dividend based on the latest quarter payout. PowerShares Global Clean Energy Fund (PBD: 29.29 +0.43 +1.49%) was 4th worst down 19.3% as the market soured on the formerly very hot renewable energy sector.
Only two stocks in the portfolio had double digit positive returns for the quarter: Headwaters (HW: 11.44 +0.29 +2.60%) still has falling earnings, but it appears the market has some faith in the company’s efforts to enter new markets in coal cleaning and waste oil. Penn West Energy (PWE: 33.69 +0.68 +2.06%) had an 11.5% positive return including almost 4% in dividends. The company still sports a 14% yield, pays monthly, and the dividend looks secure for at least a couple of years.
The bottom line is that I learned a lot over the last 3 months. My personal investments in the stocks of the portfolio were down about 5%, even though I still have a long position in TMA. I had been buying call options on TMA as the stock fluctuated, made some money, now hold July $10 calls, but made a little money overall on the positions. This blog is still fairly new, and I am learning as I go and hope to improve my results going forward. Since MarketWatch reported it was the worst quarter since 2002, my odds of doing better are good!
Note: Of the securities listed I am long TMA, HW, PWE.
KHD Humboldt Wedag International continues strong growth
KHD Humboldt Wedag Int. (KHD: 31.1699 +0.2799 +0.91%) released 2007 year end results today, and their growth appears to have stayed on pace. I will cover this in 3 steps: First the numbers for 2007 and the 4th quarter, next the company’s plans for future growth, then a few personal thoughts. The get things started, here are the numbers:
Revenues for the company grew 44% from 2006 to 2007 to $580.4 million and net earnings were up 49% to $1.68 per share. My math shows 4th quarter earnings (the number was not broken out in the press release) were 39¢ per share, compared to 34¢ for Q4, 2006. Order intake for 2007 was $818 million and the end of year order backlog was $919 million up 38% over 12/31/2006. The company ended the year with $370 million in cash and securities or approximately 1/2 of its current market capitalization.
In 2007 KHD completed the spin off of its real estate holding in the form of an Austrian REIT to focus 100% on their infrastructure business. Over the last few months they have hired a new cement division president and formed a construction division and hired a president for that division. The goal of the new construction division is to be able to build entire plants with their equipment, rather than just selling the equipment for others to build the plants around. Controlling the complete plant construction process should significantly increase the company’s revenues and profit margins.
Today the CEO, Jim Busche, announced the company’s Build, Operate and Own (BOO) initiative for 2008. The purpose of the initiative is to combine the above mentioned cash and new construction division to form strategic partnerships in their markets to form partnerships to build, operate and own cement plants with KHD’s cement processing equipment. From the press release:
KHD, in addition to being a passive minority equity partner, will design, fabricate, erect, commission and operate these cement plants. Investment banks will arrange and assist in structuring and arranging debt financing. We anticipate that we will have the opportunity to generate earnings on the engineering and equipment supply, as well as on plant operations and on the downstream sale of the commodity. KHD believes that the revenue stream from production would be constant and predictable.
My thoughts on the company and stock: First, the stock may take a hit today; the 39¢ for the 4th quarter is well below the 45¢ predicted by the single analyst following the stock. However, the same analyst is forecasting $1.87 for 2008. The company released guidance of $2.05-$2.15, not including any of the new business included above. These number translate into 25% earnings growth for a stock with a 2008 PE of 12. I expect revenues and orders to continue to grow at the 40% rate as the new initiatives and business areas pick up steam.
KHD is a company doing infrastructure business in growth areas of the globe. Their current order backlog is 33% Middle East, 29% emerging Asia/Pacific, 24% Russia and Eastern Europe, 6% Europe and 6% Americas. The company has a huge cash position and plans to put the cash to work. Finally, it has almost zero following by the Wall Street herd. A few years of quiet growth could turn this into a $100 stock. I remain very positive on KHD.
Note: I currently have a long position in KHD.
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