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Robert Zingale
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Robert Zingale is a graduate of the College of Arts and Sciences of Cornell University's class of ’09 with a degree in economics. He is interested in alternative investment strategies. Robert has passed each CFA exam on his first attempt.
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  • 5 Outperforming Stocks with Recent Insider Buying Activity
     The following S&P 1000 companies have displayed recent insider buying activity (discretionary direct ownership purchases) during the past 2-weeks and have also been outperforming SPY:

    TriQuint Semiconductor (NASDAQ:TQNT) 114,333 shares purchased

    ·         TriQuint Semiconductor provides highly integrated modules to the communications industry through their development and production of gallium arsenide, gallium nitride and surface acoustic and bulk acoustic wave technologies.  Recent buying activity was done by Steven Sharp (Chairman of the Board)

    Federal Signal Corporation (NYSE:FSS) 64,500 shares purchased

    ·         First Signal provides safety & security systems, environmental solutions and fire rescue solutions to municipal, governmental, industrial, and institutional customers.  Recent buying activity was done by five board members and two executive officers including Dennis Martin (President and CEO) and William Barker III (SVP and CFO)

    RadiSys Corporation (NASDAQ:RSYS) 25,000 shares purchased

    ·         RadiSys Corporation provides embedded wireless infrastructure solutions for telecom, aerospace, defense and public safety applications.  Recent buying activity was done by Kevin Melia (Board member)

    Digital Generation, Inc. (NASDAQ:DGIT) 12,500 shares purchased

    ·         Digital Generation offers an end-to-end digital advertising delivery network.  Recent buying activity was done by Gal Trifon (Chief Digital Officer) and Neil Nguyen (President and COO)

    ION Geophysical Corporation (NYSE:IO) 6,000 shares purchased

    ·         ION Geophysical provides seismic equipment and solutions to oil and gas exploration companies and seismic acquisition contractors.  Recent buying activity was done by Franklin Myers (Board member)
     

    The following chart shows the performance of the TQNT, FSS, RSYS, DGIT and IO against the performance of SPY over the past 2-weeks.  Note that these stocks have been outperforming the broader market during this time period.



    The following table highlights key financial ratios and price performance for each company.

     

    Date Sources: Insider transactions data are taken directly from Form 4s.  Financial data are taken from Yahoo! Finance.

    Disclaimer: Please consult your financial advisor before making investment decisions. Depending on your circumstances and risk tolerance, the strategy in this article may not be suitable for all investors.

     



    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Tags: TQNT, FSS, RSYS, DGIT, IO, SPY
    Dec 14 10:31 PM | Link | 1 Comment
  • Conn's : Diamond in the Rough Retail Sector
      

    Conn’s (NASDAQ:CONN) is an electronic retailer with operations primarily in Texas.  Their main competitor is Best Buy, and Conn’s is expecting to acquire a larger market share in the electronic retail sector as a result of Circuit City’s bankruptcy.   The primary reason to buy Conn’s is because their stock is trading at a price-to-book value of .39.  Conn’s has not historically traded below its book value either.  In some industries, companies may commonly trade closer or below book value of equity, but Conn’s roughly traded at 1.1, 1.9, 2.5, and 2.7 times its average book value of equity in 2008, 2007, 2006 and 2005, respectively.  The downward trend in price-to-book value is partly due to a maturation of the company’s electronic retail market share but was accelerated as a result of the economic downturn in 2008.  Investors are warranted to trade Conn’s at a lower price-to-book value for less growth opportunities, but with Circuit City’s bankruptcy and an eventual recovery in the economy, Conn’s will grow its revenues from its current levels.  Therefore, to buy Conn’s stock at .39 times its book value of equity gives an investor a large margin of safety.

     

    Capital Structure:

     

    Conn’s is well capitalized with a long-term debt to equity ratio of .37.  They entered into an asset-based revolving credit facility on August 14, 2008 for $210 million at LIBOR plus 225 to 275 basis points depending on their fixed charge coverage ratio.  Given this attractive lending facility, Conn’s has utilized 60% of this borrowing capacity to date. This might raise worries among some investors, but I believe this was excellent timing and foresight by Conn’s management given the tightening of credit markets that occurred after Lehman Brothers’ bankruptcy.  Conn’s also did not previously have any long-term debt before their August 2008 credit facility.  Many retailers were forced to raise capital during this latest downturn, and Conn’s was able to not hurt shareholders in the process. 

     

    Conn’s common shares outstanding have remained essentially constant over the past four years as result of two factors:

     

    Their reliance on debt over equity capital

     

    The inability of their executives to exercise vested options as Conn’s share price continues to fall below the option’s exercise price.  This will not likely to prove problematic in the future since the aggregate outstanding options for Conn’s named executive officers is only around 3% of total shares outstanding.   This healthy equity exposure will incentivize Conn’s executives to increase their stock’s price without diluting existing shareholder value.

     

    The constant level of common shares outstanding makes it even more impressive that Conn’s book value of equity has increased slightly over last year’s 3Q.  This was primarily driven by an increase in retained earnings. 

     

    Liquidity:

     

    Conn’s current ratio is a robust 4.2, however they are lean on cash.  Conn’s is having more difficulty selling receivables to their qualifying special purpose entity (QSPE). Conn’s has virtually maxed out their current credit facility for their QSPE, therefore, Conn’s must wait for customers to pay for their purchases.  This could prove difficult given the high rate of unemployment.  The commercial paper market is not extremely favorable right now either, and this could adversely affect Conn’s short-term financing needs if they deplete the available credit from their August 2008 agreement. 

     

    Operating Income:

     

    Operating income was down 3Q09 over 3Q08, but this was primarily driven by non-recurring events.  If operating income was adjusted for Conn’s $9.62 million in unusual expenses, then operating income would have been flat.  Unusual expenses were largely driven by litigation fees related to a lawsuit from the state of Texas.  Texas claimed Conn’s had deceptive customer practices.  This lawsuit should not be a material problem going forward.

     

    Overview:

     

    Positive factors

     

    Price-to-book value .39

    Long-term debt to equity .37

    Circuit City’s bankruptcy opens up more market share for Conn’s           

    Conn’s has demonstrated prior care in preserving shareholder value when raising capital

     

    Negative factors

     

    Will need to enter additional credit agreements in 2010 and may prove difficult in current lending environment

     

     

     

    Summary

     

    Although Conn’s has short-term financing risks, the margin of safety created by their price-to-book value more than compensates for that risk. 

     

     

    Disclosure:  I am long Conn’s

     



    Disclosure: I am long Conn's
    Dec 06 11:04 PM | Link | Comment!
  • Oil Trading Above "Full Carry"

    Right now it appears that oil is trading above its “full carry” value.  A “carry trade” on oil involves selling a longer dated futures contract and buying the commodity at spot price to store it until delivery.  The “full carry” price should not exceed the cost of storing the commodity; otherwise it presents an arbitrage opportunity.  According to a recent article in Reuters “Oil contango may linger, inflate stockpiles,” analysts estimate that average onshore storage costs about 70 cents per barrel.  Below is a chart for NYMEX Crude Oil (Light) quoted on the Globex.

     

     

     

     

     

     

    Chart taken from: http://futures.tradingcharts.com/marketquotes/index.php3?market=CL

     

    Right now an investor could buy a May futures contract, take delivery, and store the oil until January 2010.  The difference between the buying (Long May 2009 Future) and selling price (Sell January 2010 Future) is $11.53.  The storage cost for eight months would be $5.60 per barrel of oil.  The profit to be made would be $5.93 per barrel or a holding period return of 12%.  This is not a strategy that an average individual investor could easily perform, but many large energy-trading companies have been storing oil to take advantage of the “carry trade.”  

    Note:  Not currently performing a "carry trade" in oil

    Apr 15 3:25 PM | Link | 5 Comments
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