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recently took positions in CBI, BAC, FIG, added to TCK



June 01, 2009 – Comments (7)

I've been deploying my cash hoard in recent weeks as the S&P toyed around with the 875 mark but never broke through. 

Before I finish this post I should add that when I say "big" positions I mean perhaps 2% of my portfolio.  While I am very stock focused with essentially no diversification into bonds or bank CDs or anything, my stock portfolio is not heavily weighted in any one company.

I added alot to my position in TCK (already one of my largest holdings) in the low double digits, today it hit $17.  My logic here is that TCK doesn't do business in $USD so an event where the value of the USD falls dramatically (no matter what you read here on CAPs this is not certain) would not hurt them but rather should benefit the stock.  Also they are at the top of the material food chain, being a miner, and should benefit from inflation and a gradual rise in commodity prices.  Lastly they have refinanced their Fording purchase satisfactorily and have the potential to be a cash flow machine.

I took a good position in CBI in the 10-11 buck range as Stifel upgraded it to a buy (I like Stifel's research reports better than anybody elses), their backlog and other metrics were favorable in a recent article, they are still well down from their highs, and have a market cap in about the size range that's historically done very well coming out of big bear markets.  And a return to interest in oil should benefit CBI.

I took a position in FIG (actually added to a small one I had earlier) after the enormous insider buys recently, and after listening to their conference call and hearing their attitudes about opportunities in investment now (they had the right "buy when its cheap" attitude).

And I took a sizeable position in BAC after sitting down and considering these:   1)  the companies earnings potential is easily 20B+/year, quite possibly much higher if some of the things favorable to banks materialize in coming quarters and years such as high spreads and a sort of re-pricing of credit favorable to the creditors like that predicted by the C CFO in their most recent conference call.  Overall BAC could earn 20B (that is hardly unreasonable), Countrywide 1 or 2 (also not unreasoanble), and Merryl could earn sevearl billion as well.  If they can successfully integrate and realize cost savings, overall earnings of 30B aren't impossible.  And with a p/e of 10, not exactly radically high, a best case for earnings could leave the stock a triple from here and a more moderate case could leave it a double.  2)  BAC's capital raising moves were impressive and swift and demonstrated considerable support from institutional buyers  3)  BACs stock was oversold via the oscillator when I took the position and had been basing at the $10 range throughout the capital raising process.  $)  the potential future dividends are good.   In essence, I think BAC from $10-11 is a good long term hold.  I had a bunch of BAC from very low prices but I sold it in th e$9 range in April.  Its situation has improved since then and I got back in at slightly higher prices.

And I bought some C preferreds subject to conversion and then hedged them by selling an equivalent number of naked in the money calls for C.  Thats kind of a speculative play on the conversion.  Worst case I own some C preferreds or some C common that goes in the toilet as people dump it onto the market after conversion.  Fascinatingly, 100% of the naked calls I sold on C were executed within days of selling them despite being nowhere near their execution date, and despite the fact that they were executed at a sizeable loss to whoever pulled the trigger.  I got I think $2something for each call and they were executed at about $1.60 net value.  There has to be some significance to that that I'm not grasping, conspiracy theorists take note.

The Gov't is also an owner of C, and I don't see C common going to zero, and in the fullness of time I think after all the epic dilution it could return to $5-7 bucks.  Between the profit on the calls and the deep discount offered by the conversion my cost average will be less than $2.50. 

Beyond that I have begun looking for small cap oil, gas, and metal stocks that should move nicely with changes to the price of the underlying commodity.  I've accumulated some AA as well.

And thats about what I've been up to. 

7 Comments – Post Your Own

#1) On June 01, 2009 at 1:38 PM, Rebkong1 (< 20) wrote:

BAC still has some levels to question here as the lastest capital it raised with its preferred deal...has some downside implications with the preferred owners going short to get full value in the well with more capital that must be raised in coming is not yet done raising the necessary money for the stress test...other than that i like your calls

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#2) On June 01, 2009 at 1:42 PM, checklist34 (98.70) wrote:

rebkong, BAC is definitely a stock that has the potential to move down for some reason or other.  But overall I decided I was comfortable with the $10-11 entry point and comfortable that in the fullness of time it'll reward me nicely from there. 

C i'm not as confident in.  And in sitting down over the last week and analyzing alot of banks, I came to wonder if WFC was really a good buy at these prices or not...  its price/book is nearly 4x that of BAC

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#3) On June 01, 2009 at 2:25 PM, Rebkong1 (< 20) wrote:

i just think you could have played some better names than BAC in financials especially in short term...for the reasons i listed above...still has some pressure on it with the last equity it raised with preferreds going short..and still has more capital to be raised in near term as well...i agree your downside is not too much here maybe $8 at lowest...if your horizon is LT then you should be quite it gets through this preferred short squeeze and raising more capital..i will be long it as well

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#4) On June 01, 2009 at 2:26 PM, Rebkong1 (< 20) wrote:

i should have said "long squeeze" instead of short checklist

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#5) On June 01, 2009 at 2:41 PM, checklist34 (98.70) wrote:

i like that term "long squeeze".  I would not be surprised to see BAC tiptoe back towards the $8 range... but it wouldn't shock me if it didn't either. 

I'm ok with it at $10-11, my time frame is a fwe years. 

If my track record holds... the stock will retreat soon.  Almost always stocks go down right after I take a position in them.  RRGB is my only stock I ever bought and was never down on, but it laid an egg last week and dropped like 20%, lol.  I'm still up on it, but I'm not nearly as up on it as I was.

But thats ok, in the fullness of time BAC will work out from here.  The dilution wasn't as severe as it might have been, they have alot of loan loss reserves built up which can come back as profit in future quarters, and I'm just generally ok with it.


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#6) On June 01, 2009 at 2:50 PM, mikecart1 (79.65) wrote:

Do you think FAZ will ever hit $10 again in your opinion?  How high you think BAC will go up to by the end of 2009?

I own both lol.

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#7) On June 01, 2009 at 3:23 PM, checklist34 (98.70) wrote:

I wouldn't personally hold FAZ for more than a day or two.  The reason is that levered ETFs like FAZ decay over time.  Note that FAZ hit 100 in early march, but like 200 last November, despite the fact that the underlying financials were much lower in march (so FAZ should have gone higher). 

I don't know where FAZ is today, but if its significantly under $10 I would be somewhat skeptical that it will reach $10 again. 

As to where BAC will be by the end of the year, I guess I could see it not doing much in the next few months, or I could see it bumping up to the mid-teens range or perhaps $20. 

I think a price of ~$30ish is reasonable several years from now. 

I'm not a short term guy, I screw up most every short term move I try to make.

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