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I am a professional by day and an amateur investor by night. I have been investing since I was a teen and continue to thoroughly enjoy every minute of it!
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  • If You Have Some Spare Change Here Are Some Companies To Add To You're Portfolio

    Its late, I'm tired and I am thinking about how many companies are "on sale".

    This year has been a year fraught with questions/issues which have put fear into the market. First, there's been the decline in the price of oil which has caused a stir. Second, there's been several countries whose economies have come into question including Greece, most of Europe for that matter, Brazil etc. Third, China's stock market has been decimated by lower growth projections for the country's economy. Fourth, the Fed has been "on the fence" about whether to raise interest rates for the first time in years. Thus far it has stated that it will remain with the status quo due to most of the above issues.

    On the flip side the US market is performing well (depending on who you ask). Unemployment is quite low and getting lower, US growth is modest to good, the US dollar is strong and people are spending/buying homes.

    With that being said, the US stock market has corrected itself and is off by about 12% from its high. So what is on sale and what should be bought to add to your portfolio.

    The answer to the first question is most companies are off their highs and many are on sale.

    The answer to the second question is that I would stay away from anything that has exposure to oil and China. Why take the added risk when there are companies that do not have such exposure. I have two companies that I specifically want to mention even though there are plenty to choose from.

    The first is Kohls or KSS ($KSS). Kohls is a department store that operates about 1,150 stores in 49 States. Its exposure is to the US alone. It currently trades at about $45/share from its high of about $80/share. It has a dividend yield of about 3.9%. The company is profitable and has annual earnings above $4/share and currently trades at 9.5 forward P/E. Not to mention its free operating cash flow of about $1.65B.

    I realize retail is a tough space and is extremely competitive. Other than the financials I like the following about KSS. First, they have an excellent website for online shopping and put a lot of effort/money into this shopping experience. Second, it has a great loyalty program that has 30+ million members and counting. Third, its in-store shopping experience is quite nice compared to Target, Wal-Mart. The experience is as good as Macy's if not better even though it is in a different class than Macy's (Khols is in the discount space). This in my opinion is one of the most important things a retailer can provide to its customers. Lastly, it loves to try new things to gain/maintain customers. For example, it is rolling out cafes in some of its stores to test the idea.

    The second company is Proctor and Gamble or PG ($PG). To be frank, I've never focused on this company due to its high stock price and more importantly due to its classification as a dividend investors "wet dream". Its not exactly a growth stock. With that being said, this company rarely goes on sale and has a lot to offer at this price point.

    As you likely know, PG is a consumer goods company. It owns such brands as Downy, Febreeze, Tide, Gillette, Crest, Always, Bounty and Pampers. I could go on and on. Heck, some of these products themselves could be spun off and act as their own companies given their moat and sales/profit.

    This company trades at about $72/share from its high of about $94/share. It has paid a dividend for 59 straight years. 59 straight years. Its current dividend is about 3.67%. It currently trades at about 16.5 forward P/E and its fundamentals are very strong as one would imagine.

    PG's issue is the US dollar. Given that most of its sales are outside of the US, it is hurt by the strong dollar. The company intends to sell off numerous brands which are not significant to its portfolio and streamline its portfolio.

    I would not buy this company solely for its dividend as there are many companies trading at similar if not higher dividends. I would actually buy it for future price appreciation. PG is a consumer goods juggernaut and will continue their dominance of that market.

    These are my late night thoughts/ramblings. I hope they were coherent.

    Oct 01 11:16 PM | Link | Comment!
  • Genworth Financial Revisited: The Risk/Reward Scenario

    Genworth Financial ($GNW) just came out with 2nd quarter earnings and I am amazed by how the stock is reacting in after-hours trading. It is down about 5%. This is a company that trades at about 0.22 of its book value whereas many of its peers trade at about 0.8 of their book values. And if you actually take a good look at its balance sheet you will find a reasonably capitalized company that has good income and is profitable on a net basis. More importantly, it has little goodwill on its book which means that its book value is actual rather than being artificially inflated.

    So what's the problem here? Why is the company's stock trading so low?

    I will not re-hash the long term care (NYSE:LTC) issue. Please refer to my, or others, past articles which explain this.

    I am writing this article because from a pure risk/reward scenario, the street is essentially stating that this company will no longer be in existence.

    Lets analyze the primary risks:

    1. LTC: Genworth suffered heavy losses in the last two quarters of 2014, due to losses stemming from its long term care segment. Genworth had to make a tough decision on whether to place LTC into runoff or maintain the business on its books. It chose the latter and hired two independent actuarial firms to assist them with placing proper reserves. The good news is that LTC has been (marginally) profitable the past two quarters which is a relief. In addition, the State-to-State increases Genworth fought for will be kicking in for years to come. With that being said, the biggest question for investors is whether Genworth now has its reserves right. LTC has proven to be a very risky business with many of the larger insurers opting out. I cannot speculate what the future holds for this business and will simply stick to the facts. The bleeding has stopped in LTC for half a year thus far. Is it a band-aide or permanent solution, time will tell. However, to trade at 0.2 of book after two profitable LTC quarters makes no sense whatsoever. I could understand if it traded at a discount because of this, say 0.5-0.6 but not 0.2.

    2. Interest rates are low. This is not a good thing for any insurer. Therefore, Genworth has implemented cost cuts which will save it about $30M this year and about $40-50M next year. If/when the Fed increases rates, it will assist Genworth by allowing it to earn higher interest income. However, how will an interest rate hike impact its mortgage insurance business. Will Austrailia and Canada increase rates as well? Will this lead to higher delinquency rates? Possibly but doubtful if the Fed keeps to its word. According to Janet Yellen's recent remarks, the street should not expect continuous rates hikes. She sees low rates for some time. With that being said, this is a risk to keep in mind as its mortgage insurance unit is the only unit that is actually excelling, at least in the US is it.

    I've read several articles following Genworth's earnings announcement today. I love it when analysts and journalists misinform the public. Genworth did not have a loss from operations today, despite the tone of many articles. They actually earned a net of 0.24/share on the quarter. That is the second straight profitable quarter since "fixing" the LTC mess. This is a very good sign.

    More importantly, management is not simply sitting back and "watching to see how things unfold". They are acting. They are simplifying the company by selling the life protection business (even though selling it at a loss). They are also keeping themselves well capitalized without issuing stock (for now at least). The big question remains: what do they have in store going forward? I will speculate on this at the end of this article.

    I believe that the street is totally misjudging this company and giving it an unfair valuation as a result. Should the LTC risks remain in the back of our heads, yes. Is there a question of future growth, especially in its life and LTC segments, yes. With that being said, it is important to note that Genworth has made $119M this quarter and $154M last quarter. Not bad for a company that Wall Street has proclaimed to be dead and prepared an obituary for. The "writing" is not "on the wall" for this company.

    The stock will likely trade lower tomorrow. Take a reasonable position given your risk tolerance, and watch it carefully over then next year. At 0.22 of book, you can afford to take the above risks. If I am wrong and LTC losses resurface then you may very well be looking at losing a good portion of your position. If I am right then you could reasonably see your investment double or triple. Genworth has been a volatile stock for numerous years and will likely continue with its volatility given the nature of its businesses.

    In closing I will say the following. Genworth is worth a lot more than its trading at. If the street does not recognize this within a reasonable amount of time, Genworth could very well be taken private or be sold to a third party for a much higher sum, say $12-14/share which would be about half of its current book value of about $27.

    Aug 04 9:47 PM | Link | 9 Comments
  • $EBMT - Eagle Bancorp Montana: An Undervalued Community Bank In An Uncongested Financial Market

    Eagle Bancorp Montana ($EBMT) is a holding company for a small community bank in Montana that operates under the name Opportunity Bank of Montana. It currently operates 13 branches in Montana plus several loan offices. The bank has about $550 million in assets and $440 million in deposits.

    The following are the bank's primary stats. It pays an annual dividend of .31/share which is currently about 2.8%. It's P/E is about 12 and it currently trades at .77 of book value.

    The bank has a good track record of increasing dividends and buying back stock. It currently has about 3.7 million shares outstanding which are trading at about $11.

    So what do I like about this bank. First, it certainly trades at a discount to its peers based on the above-noted stats. All of its peers in Montana trade at much higher valuations. Second, Montana is a strong State that likely many investors do not focus on. It has low unemployment and is quite diversified economically, especially due to its resources. This is significant because it can hedge against downturns in the general economy. Third, non-performing assets are at .15% of all assets which is extremely low. This means that the bank runs a tight conservative ship so to speak. Depending on how you view this figure it could be positive or negative as typically with more risk comes more reward.

    Is there anything that makes this bank standout from all of the other community banks as there remains several community banks trading under book value in more attractive markets? Yes,which is why I am writing this article.

    Unlike almost any other State in the U.S., $EBMT (a small community bank) is the 6th largest bank by branch size or footprint in the State of Montana. This is significant because it is so rare to see/find. If you searched most States, you would find that a bank with 13 branches would have no real significance when compared to its peers within that State. In addition, most States have the larger banks, such as Bank of America, Wells Fargo, Citigroup, and U.S. Bank, to be the top banks within the State. Not in Montana. The following is a list of the top banks in Montana by their number of branches:

    Glacier Bank - 63

    First Interstate -51

    Wells Fargo - 45

    Stockman Bank - 35

    US Bank - 25

    Opportunity Bank - 13

    It appears that the community and regionals have a stronger hold on this State than in most other States. Or possibly the Nationals do not believe that it is worth the additional investment to compete strongly with the regionals and community banks in Montana. For whatever the reason, $EBMT is a significant bank in Montana despite its small size. In almost any other State it would be at the bottom of the pack.

    How or why is this important? With such an attractive valuation, $EBMT could be seriously considered as a merger candidate to further solidify one of the larger banks foothold in the State or to take a smaller bank to great heights within the region. That's my point, it wouldn't take much for a 10 branch bank with $500 million to $1 billion in assets to merge with $EBMT and become a true contender in Montana.

    Whats not to like about this bank? For one, its earnings are nothing special. They appear to be growing very slowly. Furthermore, the bank has no activist investors involved and appears to be very conservatively run which could mean that management is not interested in mergers. Moreover, the stock is very thinly traded And it's 52 week range is between 10.50 to 11.40.

    I probably wouldn't suggest taking a large position in this bank. However, if you have some room in your portfolio take a small position and hold then this could be for you. You could see a merger which would likely propel the stock to over its book value of about $14/share. Do not buy this stock for earnings growth unless through a merger.

    Aug 01 1:05 AM | Link | Comment!
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  • WOW. $GNW down about 27% over last 2 days. Their BODs must be getting worried. Management shakeup? Activist? Something has to give.
    Aug 6, 2015
  • Just reviewed the earnings. Not bad. Simplifying business and no loss in LTC. That's what this year is all about. Decent quarter for $GNW.
    Aug 4, 2015
  • Wonder what $GNW earnings will look like, esp the long term care. A few solid quarters are necessary for the street to look at again
    Aug 4, 2015
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