SIN Picks

Taking Profits in TWM, Adding to Barclays (BCS)

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September 17, 2008 | SIN Picks | Author Asif

The markets did not react favorably to the Fed’s decision to bail out AIG (AIG) with a two year $85 billion loan and to leave interest rates untouched. With the Dow down over 300 points or 2.8% and the Russell 2000 Index (^RUT) of small cap stocks down over 4%, the Ultrashort Russell 2000 ETF (TWM) is up more than 8% and I am going to take profits by closing out our 100 share position for a gain of roughly 10%. I will use the closing price of the day as the selling price and the trade should appear in the Historic Trades section just like all our other completed trades.

British banking giant Barclays (BCS) is probably thankful that they lost the bid for ABN Amro to The Royal Bank of Scotland (RBS) last year. In a wise move, the company waited until after Lehman’s bankruptcy to pick up Lehman’s investment banking division for just $250 million. The company also picked up Lehman’s NY headquarters and other assets for $1.5 billion. When the ashes finally settle, banks like Barclays and Bank of America that are picking up distressed assets (and risk) are likely to emerge much stronger. While our initial position in Barclays was much too early and we lost nearly half our investment, I think it is a good idea to add to our position now and am going to purchase an additional 200 shares of Barclays for the model portfolio based on the closing price of the day. Please do your own due diligence as I could just as easily be wrong a second time and cash seem to be an excellent asset class right now.

I will execute these trades in my personal portfolios as well.

Voluntary Disclosure: I currently hold positions in TWM and Barclays (BCS).

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Taking Profits in Umpqua Holdings (UMPQ)

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September 8, 2008 | SIN Picks | Author Asif

Our regional banking pick Umpqua Holdings (UMPQ) held up really well last week while the Dow dropped 2.79% and the S&P 500 gave up 3.16%. The company got another 8% boost today after the government bailout of mortgage giants Fannie and Freddie and the release of the following statement from Umpqua,

“The financial services industry is struggling as a result of the housing market downturn and we’re now seeing the impact of that as companies eliminate their residential mortgage lending divisions. Umpqua Bank isn’t making any changes to this area and, continues to see significant activity in its mortgage division. Umpqua’s management team has carefully stayed within its traditional lending guidelines rather than moving to the industry’s less responsible requirements and, as a result, has been able to sustain its strong credentials throughout industry turmoil.”

In addition the company declared a regular dividend of 19 cents today payable October 15 to shareholders on record as of September 30.

The stock has appreciated more than 32% since we added it to our model portfolio on 6/30/2008 and while I believe in the long-term prospects of Umpqua and am highly conflicted about selling it now, I think it would be prudent to take profits at this point. We may be entering the last act of the downturn in financial stocks but I feel that we have not hit the bottom yet. Hence I am going to sell Umpqua both from the SINLetter model portfolio and my personal portfolio and am going to move the company back to our watchlist in case we get a better point of reentry in the future. The closing price of the day will be used as the selling price in the model portfolio.

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TowerStream Adds Prominent Clients, Revenue Jumps 53%

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August 12, 2008 | SIN Picks | Author Asif

Commercial wireless internet service provider TowerStream Corp (TWER), which was featured in the July 2008 edition of our investment newsletter reported second quarter results after market close yesterday with revenue increasing a better than expected 53% to $2.49 million when compared to the second quarter of 2007 and an improvement of 20% from Q1 2008. Revenue growth came in higher than the company’s guidance and the expectations of the two analysts that cover the stock. The company added prominent clients like Netflix (NFLX), ESPN (DIS) and Intel (INTC) in the second quarter and on a sequential quarter basis almost every important metric improved except for the net loss which widened to $3.73 million due to capital expenditures and the building out of the company’s sales team.

Some key metrics along with comparisons are given below,

Q2 2008 Q1 2008 Q2 2007
Revenue $2.49 million $2.08 million $1.63 million
Gross Margins 58% 53% 66%
Earnings (Loss) ($3.73 million) ($3.61 million) ($2.39 million)
Cash Burn $4.4 million $4.7 million $2.43 million
ARPU* $797 $735 $669
ARPU New Subscribers $898 $842 $918
Churn Rate 1.17% 1.33% 1.83%

* Average Revenue Per Customer

Revenue for the third quarter is expected to rise 58% year-over-year and 12% on a sequential quarter basis. I view the results as being positive and in anticipation of these results, the market drove the stock up 15.44% yesterday. The stock is now delivering gains of 35.43% since we added it to the SINLetter model portfolio and it might be prudent to take some gains if you are risk averse. However since the company reported that the second quarter represented a peak in terms of cash burn and because it continues to report excellent growth even in this difficult environment (an 8 MBPS upstream/downstream connection for under a grand is a great deal), I am going to retain our position in TowerStream for now.

Full Disclosure: I continue to hold the long position I initiated in my personal portfolio after the July newsletter was sent to subscribers.

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The First Four Billion Were The Easiest

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May 15, 2008 | SIN Picks | Author Asif

ETF provider WisdomTree (WSDT.PK)  and Dreyfus Corporation announced the launch of four currency income ETFs yesterday based on the Chinese Yuan (CYB), Indian Rupee (ICN), Brazilian Real (BZF) and the Euro (EU), with a Japanese (JYF) one in the pipeline. Investing in these funds would be similar to investing in money market funds in these countries. As discussed in the recent Fortune article titled Is Your Money Fund Safe?, most money market funds maintain a constant share price like $1 and the firms running these funds go to great lengths to ensure that the share price does not drop.

Unlike money market funds, these WisdomTree funds may not maintain a constant value on account of the investment instruments they are using to simulate money market like returns.  With Brazil’s central bank raising its benchmark lending rate by 50 basis points in April, the Selic rate now stands at 11.75% and is probably very appealing to income investors despite the currency risk. Indian banks tend to offer higher interest rates to domestic accounts when compared to Non-Resident accounts. I wonder what the yield on the WisdomTree Dreyfus Indian Rupee Fund (ICN) is going to be as I could not find that information on the WisdomTree website or on ETFConnect.com.

As an investor in WisdomTree, the most interesting part of the press release was the fact that WisdomTree’s assets under management (AUM) grew to $4.7 billion from $4.3 billion last month. While this jump is noteworthy, growth in AUM has obviously slowed when compared to the rapid accumulation of assets that occurred last year as discussed in this blog entry about WisdomTree. Given below is an updated table of AUM growth at WisdomTree.

Date Assets Under Management
June 16, 2006 20 ETFs begin trading
October 13, 2006 $700 million
November 10, 2006 $1 billion
December 22, 2006 $1.5 billion
Late January, 2007 $1.9 billion
February 2007 $2.4 billion
March 2007 $3.1 billion
April 2007 $3.5 billion
May 2007 $4 billion
January 2008 > $4 billion
April 2008 $4.3 billion
May 2008 $4.7 billion

With the Dow and S&P 500 posting losses for the 12 month period since last May, it is encouraging to see WisdomTree’s assets grow (albeit at a slower rate) and the launch of innovative new products from the company. However market conditions have taken a toll on many investment management companies like U.S. Global Investors (GROW), Brookfield Asset Management (BAM) and WisdomTree (WSDT.PK), making this young start-up one of the worst performing stocks in the SINLetter model portfolio and has taken a small toll on my personal portfolio as well.

The market is obviously not happy with the first quarter 2008 earnings report (PDF) the company filed yesterday and the stock is down over 20% as I write this blog entry. With just $15.25 million in cash on hand and an operating loss of $10.27 million in Q1 2008, the company is being priced for bankruptcy or further dilution of existing shareholders through additional stock offerings. It is hard to imagine a company with legendary hedge fund manager Michael Steinhardt and Professor Jeremy J. Siegel at the helm going bankrupt but so was the meltdown at Long Term Capital Management.

Besides cash, the company does hold $26.65 million in investments and revenue more than doubled in Q1 2008 to $5.375 million. With strong trading volume in its recently launched WisdomTree India Earnings ETF (EPI), there is a just a chance that the company may survive and prosper or get acquired like PowerShares.

Voluntary Disclosure: I hold a long position in WisdomTree.

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Taking Profits in Canon (CAJ)

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May 2, 2008 | SIN Picks | Author Asif

In anticipation of a big purchase later this year, I am liquidating part of my stock portfolio and as I mull over which stocks to sell, Canon (CAJ) and Nokia (yes I am still holding on to it since I featured it in the October 2005 edition) stand out the most. Canon has had a nice run in recent weeks with the stock appreciating almost 30% since early February and 13.48% since we added it to our model portfolio at the end of 2007.

One of the reasons I mentioned while picking Canon was the extreme sell-off in the stock due to concerns about a stronger yen affecting profits in 2008. The yen continued appreciating against the dollar through mid-March but the stock has instead appreciated year-to-date as you can see from the chart below.

Canon is an excellent company and long-term investment but on account of my short-term need for liquidity and the recent appreciation in the stock price, I am going to take profits by selling the stock in my personal portfolio after this blog entry goes out to subscribers. I will also be selling it from the SINLetter model portfolio based on the closing price of the day.

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