Sunday, May 31, 2009

Citi

This may sound strange coming from me, but I'm bullish on Citigroup (C). My reasons are simple, the feds have said that no large, systemically important bank will be allowed to go under, Citi needed a lot less capital than both Bank of America (BAC) or Wells Fargo (WFC) after the recent stress test, and Citi has significantly underperformed the other large banks.

This seems like a no brainer, buying Citi under $5. Keep in mind that this is a long term play, so think 2 - 3 years out. It's hard to believe Wells has a market cap of about $108 billion and JP Morgan $138 billion. Even BofA has a market cap of $72 billion with all of their problems, which I believe to be on par with Citi.

With a market cap of $20 billion, Citigroup represents tremendous value at the moment. Remember, they're not going out of business and even though the feds own a large piece, I believe the mood in the financial markets is changing and they'll be able to pay that money back and fix their capital structure sooner than people think.

Something to think about, in 2006 Citi had revenue of nearly $150 bil and net income of about $21 bil. When the economy gets back on track, I see this stock moving up significantly from here, then the equity analyst will finally upgrade.

Disclosure: Long C

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Saturday, May 30, 2009

Previous Banking Poll 25May-29May

When asked "Should the 4 largest banks, JPM, BofA, Citi, Wells be broken up once markets return to normal?" 39 (67%) said Yes and 20 (33%) said No.

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Monday, May 25, 2009

Market Indicators

Has anyone noticed where commodities, the dry bulk index, and the dollar have gone over the past few months? The current environment is starting to look a lot like the beginning of the last bull run. Oil has almost doubled from its recent low, grains have followed, the dry bulk index has almost tripled (see the chart on this page), and the dollar is trading at 1.40 to the Euro after trading at 1.25 a couple of months back.

There's been a lot of discussion about whether we've bottomed or not. I say it looks a lot like the start of a bull run. If you don't believe that argument, look at stocks like Potash (POT), Petrobras (PBR), and Freeport (FCX). The professionals know where to put money during bull markets, especially bull markets where inflation may be an issue.

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Sunday, May 17, 2009

Previous FDA Poll 11May-15May

When asked if the current FDA is an improvement over the FDA from a year ago 20 (80%) said yes, 1 (4%) said no, 4 (16%) said no different.

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Thursday, May 14, 2009

Fanning the Flames

I've posted before on the rating agencies at seekingsigma and here's another. I can't help but wonder what goes on in the back office of one of these organizations. Recently, one of the large rating agencies lowered the credit rating of a large life insurer stating that they didn't like something they heard the CEO say on the conference call (very scientific). Then today they lowered another large insurer saying they thought the business would suffer this year (oh really).

I wasn't surprised when the stocks showed little reaction. Finally, I think the market gets it, the rating agencies are as clueless as many of the equity analyst at buy side banks. They've become close to irrelevant and they have only themselves to blame. I'm looking forward to the day when we don't need them at all. They've cost investors and companies billions. They've increased market volatility and they continue to be allowed to go about unchecked.

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Friday, May 8, 2009

Previous S&P Poll 4May-8May

When asked "Will the S&P 500 be lower at the end of May than the 1st of May" 104(49%) answered yes, 81(38%) answered no, and 30(13%) answered even within 2%. The S&P was at 877 on May 1st. Interesting point to make is that as the days went on, opinions changed (of course). The first 2 days of this 5 day poll tracked at 62% answering yes!

These polls present useful information assuming you know what to look for and understand that maybe 95% of the respondents are retail investor/traders such as myself and probably you.

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Thursday, May 7, 2009

The New Improved FDA

Looks like I'm not the only who has noticed that the FDA seems to be in an approvable mood these days. Where ever I look I see small biotech companies moving up big. Did anyone catch Vanda (VNDA). That little stock went from a buck to trade over $10 over night after receiving FDA approval when no one thought they'd get it.

I've noticed many biotech penny stocks surging on high volume, CTIC, KERX, NEPH.OB, HEB, just to name a few. I'm no big biotech investor, although I did well on Dendreon (DNDN), but the sector has gotten my attention. To be truthful, I always thought it was too much of a crap shoot, but the prospect of an FDA that actually wants to put new, safe drugs on the market that aren't necessarily marketed by large drug firms can't be ignored.

Send your hot, little biotech/drug stocks my way, I'm listening.

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Sunday, May 3, 2009

The Sequenom Effect

After the stock of Sequenom (SQNM) plummeted about 75% on 30 Apr, I thought I'd post on the subject. The company said there were data issues and it's under investigation. The CEO also called it a minor set back. It should also be noted that the company has had issues in the past with data and/or tests.

I don't know how this will turn out, but I will walk you through my own approach to deciding whether or not to speculate. I believe there are 2 likely outcomes 1) data issues that will eventually be resolved or 2) total fraud and manipulation. Without knowing anything more than you, I place 70% probability on the first and 30% on the second. Any other outcome is probably not worth discussing at this point because with most small companies like this, it's all or nothing.

By the way, I placed these odds because fraud is rare and unlikely. I usually place 50/50 odds when I know nothing, but again, I have to believe no one wants to be sued or go to jail, so fraud is the less likely scenario.

So if the issues are resolved, the stock goes back to $15 (where it was before the announcement) and if it's fraud, it goes to a buck. So 15*.7 + 1*.3 = $10.8 expected stock price. If you went long since the announcement then you probably bought somewhere between $3.5 - $4.5 (I did). We'll see where this goes.

Most of the drop and volatility can be attributed to two very large shareholders. You know the names. One of the funds had 90% of their portfolio invested in the company and the other had 50%. Clearly, these funds had no risk management rules (see SeekingSigma for commentary on financial risk management). They more than likely were forced to sell, OUCH!

By the way, no one outside of the company knows the details yet, so all the talk on the boards is just that, talk. Should be an interesting few weeks.

Disclosure: long SQNM

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Sierra Wireless Revisited

Sierra Wireless (SWIR) is one of my Model Portfolio names and after the Q1 announcement is worth talking about again. This is one of the most undervalued companies I see. Looking at the financials, it has no significant debt, almost $5 per share in cash, they blew away the 1st quarter number and forecast 2nd quarter numbers that beat.

The company has sound management and is diversifying their product line into the business area. Wireless mobile broadband is a growing business and there are two main providers, Novatel (NVTL) and Sierra Wireless. I believe Sierra is the superior company and actually trades at a lower valuation to Novatel.

This company is a prime time buyout candidate and they must know as they've put a poison pill in place.

disclosure long SWIR

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Saturday, May 2, 2009

Previous Bank Stress Poll Result 27Apr-1May

When asked if any of the 19 banks would fail the stress test, out of 310 voters, 201 (64%) answered Yes, 109 (36%) answered No.

Earnings Trader System

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The Vix

About This Blog

Where we rant and rave about the market and of course give our opinions on stocks we love or hate. We're not advisors and urge you to conduct your own due diligence.

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