Monday, September 26, 2005

an insurance holding co. that's a bit under the radar --White Mountains (WTM)

White Mountains is a new stock that's made my watch list. Share price is $627, market cap about $7 billion. 1.3% dividend yield. Pretty chart. I've started to look at P&C insurers plus holding co's like WTM as shares of many of these firms have sold off post-Katrina. WTM's initial estimate for Katrina losses is at $150-300 million pre-tax, so they won't get by unscathed. Even so, I'm impressed at WTM's ability to move book value higher over time. Book value/share did decline in '99 and also in 2001 but nevertheless, BVPS stood at $91 at yr. end 1995 and $360 in 2004.

WTM is divided into 4 major segments. I recommend reading this 2004 Management Report for details on each, but I'll leave you with a few thoughts here. White Mountains RE is the co's reinsurance arm and OneBeacon is their P&C division. What I like to see in these segments (and what WTM emphasizes) is intelligent underwriting. From page 40 of the 2004 annual report. "An insurance enterprise must respect the fundamentals of insurance. There must be a realistic expectation of profit on all business written, and demonstrated fulfillment of that expectation over time, with focused attention to the loss ratio and to all the professional insurance disciplines of pricing, underwriting, and claims management." Also from page 40, WTM indicates that it won't go after market share by writing dumb business -- "In our personal experience, chasing market share has produced the biggest disasters in our business. Often we have profited later from that excitement."

Another segment of WTM is Esurance, the online direct-to-consumer auto insurer. In 2004, Esurance turned in a pre-tax profit for the first time. Low cost operator. Lot of room for premium growth. The final segment of WTM is its investment management arm. John Gillespie is chief of this unit and seems like a sharp guy. Read his section of the '04 report too. One more note that I like from WTM CEO Ray Barrette, "We now have roughly $1 billion of undeployed capital and we expect this balance to build, especially if we shrink our premium volume. ....rest assured that this money is not burning a hole in our pocket."

What would I pay for WTM? The avg. P/B in the last 5 years looking at yr. end book values is 1.6. I like things on sale, so I'd be interested at a P/B value of 1.5 times the 2004 yr. end BV of $360, or $540/share.

Respect to Neil -- 2 IGT notes

IGT Director Neil Barsky bought 2.3 million shares about two weeks ago. Cheers. Also, here's a presentation that IGT gave at a BoA conf.

If you're interested in VITA

I suggest you listen to CEO Tony Koblish's presentation at a Roth Capital conf. this month. CEO speaks well and slides are helpful in getting understanding of Cortoss, Vitoss, Vitagel products.

Saturday, September 24, 2005

APTM presentation

If you're an Aptimus (APTM) long or are interested in the company, I'd suggest listening to the co's recent presentation (and viewing the slides) at the Merriman Curhan Ford conference. Register at the bottom of the page. Could be a big 2006 if 1 or 2 of the top 100 come on-board in any kind of meaningful fashion.

a couple movers that have caught my eye -- STZ and SYY

Constellation Brands (STZ) shares got beaten up on a JPM downgrade this week. I still see big opportunities from the Modavi acquisition in the UK plus the seemingly persistent worries about beer are somewhat mitigated by the co's Corona products. I like STZ a lot sub $25.

Sysco (SYY), the foodservice behemoth, is another old favorite. The co. has had to deal with inflation in costs plus worries about what a weakening consumer might mean to the top and bottom line. But there's a lot to like here. SYY is a clearly the dominant player in the industry. ROE is consistently outstanding (36% ttm). The desire for American consumers to dine away from home is a secular trend. The co's multi-year RDC initiative should yield some benefit to operating expense. SYY also has a solid dividend yield of 1.9%. I'm in around $30.

I closed out SHLD and GM

on Tuesday and Wednesday of this past week. On GM, I worry what any UAW concessions or Tracinda's increasing stake might mean for the stock price. On SHLD, maybe it has more downside to go, but I'm happy with my profits here.

My current short (or long put) positions are in OATS, MSO and CSGP.

Tuesday, September 20, 2005

an idea for a low-return world -- TYG

Tortoise Energy (TYG) is a closed-end fund MLP. I had looked into MLP's before but kind of forgot about them when I read about the tax hassle associated with the year-end K1's. TYG is set up so that investors receive 1099's instead of K-1's. TYG is basically invested in gas and crude pipelines and has a dividend yield of 5.7%. The co. distributes 95% of it's distibutable cash flow as dividends and currently trades at a slight premium to it's NAV. Plenty of good information is at the tortoise website.

I'm done with SONT

I sold my Sontra Medical today right around $1.25 and took my loss. I still find the technology promising but I've lost all faith in the CEO. First, the co. turns in very weak sonoprep numbers in the mrq. Secondly, during the most recent conf. call, the CEO took the $1 million 4q sales number off the table. Thirdly, also during the most recent cc, the CEO stated that hepatitis A and flu vaccine results would be available in the 3q. With 10 days left in the q, nothing has been reported. And finally, CEO Davison has reiterated on the past 2 cc's that the co. would receive a $3 million payment from BAY in regards to the development of the continuous non-invasive glucose monitor, by the end of q3. Again, nothing has been issued with 10 days to go. I've had enough.

Saturday, September 10, 2005

Jeff Matthews gives his take

on SHLD and Mr. Lampert's decision to become more involved in Marketing and Merchandising.

Thursday, September 08, 2005

quick note on VITA

VITA is one of the few names that I have any long interest in now. $3.60 would be a 20% discount to the ANPI offering price of $4.50 that VITA rejected in May.

the SONT saga continues

Still waiting on Sontra Medical management to update shareholders (per their quarterly CC) about the status of two SONT-involved vaccine studies and also regarding the $3 million Bayer milestone payment due for their glucose monitor development project. Both of these events should be announced by the end of Q3 (ends Sept.) Nothing like waiting for the last minute.

One positive on SONT is that a director has recently been buying a decent amount of stock. Stay tuned.

Booyah indeed. SHLD shares down 5%

Sears Holding (SHLD) disappointed investors for the second time in 2 quarters when they released Q2 results today. Here is the official press release detailing the results. Here are a couple other articles on the SHLD quarter -- Lampert takes hands-on role at Sears and Sears bottom line barely budges.

Here are some of the key takeaways:
  • The investment bank SHLD bulls seem to believe that SHLD can manage flat to slight sales increases going forward. I take issue with that and got some confirming data points today. SSS/Total Sales for the Q at Kmart were off 0.3% and 3.2%. At Sears, SSS/Total Sales for the Q were off 7.4% and 3% respectively. Also, I can't remember the last time that either of these operating units faced a difficult comp.
  • Aylwin Lewis takes over CEO reigns from old S CEO Alan Lacy. This isn't terribly surprising and probably makes sense. Lacy's mis-steps in his Sears days served me well as a S short years ago.
  • This is a surprise. "Mr. Lampert will direct the marketing, merchandising, design, and on-line businesses of Sears Holdings, as well as Lands' End, to ensure that these initiatives are clearly focused on responding to customer needs." Yes I know Ed Lampert is the smartest man on Earth, but are his talents best placed in Marketing and Merchandising?
  • In the Q, SHLD spent $114 million on capex vs. $287 million in the year ago quarter (S+Kmart combined). Okay, I get the cash-flow implications here. But I still think SHLD needs to invest more heavily to upgrade their retail operations. If I want to shop at a dump, I'd just go to WMT and save 20-25%.
  • One positive for SHLD is on the overall GM% line. This ratio improved from 26% to 27.2% qoq. SGA was essentially flat qoq.
{Note that I am short SHLD shares}

Tuesday, September 06, 2005

the Mogambo sometimes hits the nail on the head

But it was Greg Ip in the Wall Street Journal that put me over the edge. It was last Friday when he wrote in his article "Greenspan's Legacy Explored" what I took as some congratulatory praise for Greenspan. I know that he is just an employee, but was it really necessary to so gloriously laud him as a "Fed chairman who presided over a decline in the U.S inflation rate and unemployment and successfully navigated several financial crises"? Hahahaha! For one thing, Alan Greenspan had nothing to do with the apparent fall in the inflation rate! The REAL reason is that China started providing us with stuff cheaper. THAT is what caused it to look like inflation fell.

In reality, the monster you call Alan Greenspan CAUSED runaway inflation in stocks, bonds, houses and government spending, by deliberately creating excess money and credit year, after year, after freaking year! He also participated in the fraud of distorting inflation statistics by not objecting to the horrid Michael Boskin and his infamous Boskin Commission, who came up with "official" ways to magically reduce inflation in prices with statistical mumbo-jumbo, such as the infamous adjusting for "quality", where you get such ridiculous results as "Yes, the widget costs twice as much, but it is a better widget. So after adjusting for the gain in quality, the widget is actually cheaper, even though it costs twice as much! So inflation in widgets went down, even though the price went up!" Hahahaha!

And as for the "several financial crises" that he is supposed to have successfully "navigated", he caused those, too! If it weren't for this despicable Greenspan bastard, we would not have had any financial crises in the first damned place, because you can't have bubbles and crises without somebody providing the financing. It's like when my idiot daughter says, "Well, daddy, I crashed the car. But I covered it up with duct tape, which covered the rusty spots, too, so now the car is better than it was!” my knees don't get all wobbly in praise of her "successfully navigating an automobile crisis!"

To the contrary, this low-life Greenspan bozo spent his entire18-year career screwing up the economy of the USA by jamming unhealthy amounts of fat, cholesterol and calories into the economic system in the form of wildly excessive money and credit. Hell, since 1997 he has outdone even himself, and has been creating unbelievable amounts of money and credit at extremes never before seen in history! All the damned time, more money and credit!

Entire article here.

Paul Kasriel states

his case for the Fed going on hold in it's upcoming meeting in Sept. in his 9/6 piece.

Monday, September 05, 2005

What the Fed will do in September

Many commentators have speculated that the Fed might pause at their next FOMC meeting in a few weeks in the aftermath of the Katrina disaster. "Oil has spiked to $70! Unleaded gas is over $3/gallon!" True enough. But pre-Katrina, oil was in the mid-$60's and apparently we were able to manage through at those levels. My call for the next Fed meeting is another 25bp and a drop of the "measured " language. As far as November and December, who knows. But I expect interest rate cuts to come as the economy slows even further in 2006.

It's been awhile....

I've been busy at work. Here's some reading material for you:

Mr. Roach on endogenous vs. exogenous shocks.

Again, Mr. Roach discusses the Global Economy's 1st oil shock, Part 1 and Part 2.

The clever Mr. Kasriel from NTRS (always with supporting charts) discusses the excesses in the U.S. economy - - INXS

The latest from Dr. Marc Faber