Today IndyMac Bancorp, Inc. (NYSE: IMB) reported that its quarterly loss was cut by 64% leaving investors with a small glimmer of hope... although the company has done a small about face. Previously IndyMac had suggested it might be possible to get back to profitability by the fourth quarter. They now are reporting that they probably will not report a positive quarter in 2008.
It was only ten days ago that CEO says IndyMac has 'turned a corner' but the story continues to evolve. The stock closed down today at $3.06, losing 37 cents or almost 11% of it's value.
Disclosure: I own shares of IMB.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money.
The earnings party of last week was full of fun and frolic. For the most part, if you followed my list of recommendations, you would have had your very own "Fiesta de Finance." (See Week in Preview – May 5)
The earnings season is still in full swing and should provide a great deal of action for the companies that will be reporting. But these companies will have to fight through a few new economic barriers. With oil pushing past historic levels and questions beginning to surface concerning the ability of the investor to continue to support a market that has so many headwinds, the mood is likely to shift moving forward. It is time for discipline, short and simple. Now, more than ever investors need a plan. I cover this strategy in my book, The Disciplined Investor.
In the last installment of The Week in Preview, I was looking for party opportunities in honor of Cinco de Mayo. This week, Misery is the theme. That is the only word that comes to mind with oil at a level that you would have never expected, a massive and unrelenting credit and housing crisis and a banking system that is defunct.
Monday - May 12
We start the week with a report from IndyMac Bancorp (NYSE: IMB). This bank is smack in the middle of the housing problem. It is primarily a lending company that facilitates loans for single-family homes. It's also involved in the origination and trading of mortgages. How does that sound to you as an investment? Shares have slid from $23 in October 2007 to an unbelievable level of $3.50 recently. Ouch... If you are a shareholder still holding on with hope and a prayer for something...anything, keep on dreaming. The good news is that the stock is sporting a yield of 29%. But, if you think that yield is going to be maintained, I have a bridge for sale. Estimates are for a loss of $1.92 per share for the quarter.
As one who was greatly embarrassed by making a premature recommendation (being kind) that investors give consideration to acquiring shares in IndyMac Bancorp (NYSE: IMB) prior to its dramatic collapse; I can ill afford to suggest that folks jump in now. However, I might just do that.
Yesterday IndyMac jumped about 20% as it was reported that CEO says IndyMac has 'turned a corner' finishing the day at $3.97 a share -- still a long way from its 52-week high of $37.50. "Given the decline in our stock price, some people have questioned IndyMac's survivability in the current environment," Chief Executive Michael Perry said. "I am here to tell you that I believe we have turned a corner and that our business is improving. We are now achieving profitability with this new production model, with all of our nine regional wholesale centers and 104 of our 152 retail lending branches being profitable in March," Perry said.
The message is clear from the top, with negative earnings and corresponding negative P/E ratio just about any turnaround would make this stock cheap. Perry is correct that the stock is priced for failure. What should the price be if Perry gets IMB back to profitability by the end of the year? A lot more than it is now.
The stock moved way up at the opening bell this morning trading to $4.20, so there are a lot of investors who share my view ... and then it traded down, so then again...
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of IMB.
TheStreet.com's Jim Cramer says the bad news should make sure the Fed keeps cutting.
We haven't broken the spiral yet. The waves off of homes just keep fighting new areas to hurt, new municipal projects to ding, new large jobs numbers lost, new margin calls for places like Thornburg (NYSE: TMA) (Cramer's Take), which I thought was out of the woods.
Then I saw the TMA news and the verbiage that there was another problem in the markets in February that will require margin calls. This is the Alt-A culprit, the hard-to-value loans given to people who look likely to return the money because they have good solo jobs but on paper haven't been performing. TMA has a ton of jumbo loans to these people. Only back-from-the-grave Indymac (NYSE: IMB) (Cramer's Take) is worse.
Truth be told, we know these are all momentary issues. No bank seems willing to let anyone fail here, and neither TMA nor IMB will be so hurt by these new issues that they can crush the market. Same as Fannie Mae (NYSE: FNM) (Cramer's Take) yesterday -- staggering losses, but so what?
Indymac Bancorp (NYSE: IMB), a savings & loan and mortgage originator, announced the suspension of quarterly dividend payments indefinitely as it reported a Q4 loss of $509M or $6.43 per share.
IMB increased credit reserves to $2.4 billion from $619 million in Q4-06.
IMB says: "Expected to "Raise" an additional $400 Million of capital in 2008. Near record $6 billion in operating liquidity and no capital markets funding."
IMB over all option implied volatility of 119 is above its 26-week average of 100 according to Track Data, suggesting larger price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
To quote one of my college professors (with thick Chicago accent) "Ya pays yer nickle 'n ya takes ya bes' shot." This year I wrote over 200 stories and reviewed even more stocks. Going over all of this material I came up with the ones listed here as my four best and four worst of the year.
If you would have acquired these eight stocks you would be up 21.79%, about double the NASDAQ, triple the DJIA and 550% over the S&P 500. Had I followed the advice of some of my more astute readers or been more cynical about the forthrightness and leadership in the financial sector, I would have had a really smashing year. As it was, I cannot complain. I think this coming year I will have to analyze some of the feedback even more closely than I have in the past -- keep those comments coming!
Here are the results of the indices from December 28, 2006 through December 27, 2007 for comparison:
Is CIT (NYSE: CIT) (Cramer's Take) next with its student loan portfolio (as opposed to its mobile home portfolio and its subprime portfolio...sheesh!)?
We obviously had a giant problem with MBIA (NYSE: MBI) (Cramer's Take) over the amount of capital it needs to raise. Will it have to raise capital and cut the dividend?
My newest portfolio is my worst portfolio and the only one that is negative. How did this happen? The poison financials and my bad timing, that's how! It is embarrassing, to say the least, and I take no joy in reporting my blunders. I hope readers will appreciate the fact that I am willing to discuss everything and not just the bright spots.
Furthermore when I put my foot in my mouth I do it with style and grandeur. Take note of the story titles because they would be hysterical except for the fact that I really did buy these stocks and I still own them with one exception; so I'm not laughing too loud. I sold Washington Mutual in all but one portfolio at $36 a share. The following indicates the date of the original story. The closing prices are from Monday, November 26, 2007.
No title could be more ironic and more wrong than the IMB story, unless of course your objective was to lose money. One of my older and wiser friends (A.L.) who manages money for high net worth individuals raised his eyebrows as he repeated the story title to me the day the story was posted. Now I hear his words every time I think about IMB. Had you followed my lead into the fog your average loss would be about 54%!
Anybody who takes even a casual look at the October delinquencies knows that these companies are going to be severely capital-challenged. Meanwhile, value guys like Third Avenue Management (Radian) and fellow travelers (Old Republic and PMI) make Pyrrhic stands and engender short squeezes that are mistakenly not used to recapitalize. And outfits from E*Trade (NASDAQ: ETFC) (Cramer's Take) to Fannie Mae (NYSE: FNM) (Cramer's Take) are left holding the bag on this stuff.
The NYSE released its short interest figures by company. The numbers compare shares sold short in companies listed on the exchange as of October 31 compared to October 15.
No one is likely to be surprised that the short interest in Countrywide (NYSE: CFC) rose very sharply, by 27.1 million shares to 106.9 million as traders bet the stock will drop further.
Shares short in other financial stocks also grew. At Wells Fargo (NYSE: WFC), the figure rose 8.1 million to 47.7 million. At IndyMac Bancorp (NYSE: IMB) the number went up 3.9 milion to 43.2 million.
Short interest in several stocks at troubled companies dropped, indicating that traders believe that the shares may not fall further. The short interest in Sprint (NYSE: S) fell 12.3 million shares to 39 million. Shares short in AMD (NYSE: AMD) dropped 8.8 million to 67.1 million. And, the short interest in Motorola (NYSE: MOT) dropped 4 million to 28.5 million.
The short interest in the Russell 2000 Index moved up over 10%. That is a lot of traders who think the market is headed down.
MOST NOTEWORTHY: The mortgage finance sector, Applebee's, Fuel-Tech, BHP Billiton, Anglo American and Rio Tinto were today's noteworthy downgrades:
Lehman downgraded the mortgage finance sector to Negative from Neutral citing the potential of over $100B in losses for the group in the coming years. Washington Mutual (NYSE: WM) was downgraded to Equal Weight from Overweight; IndyMac Bancorp (NYSE: IMB) and Countrywide Financial Corporation (NYSE: CFC) were downgraded to Underweight from Equal Weight.
Applebee's International (NASDAQ: APPB) was downgraded to Underperform from Market Perform at Wachovia, as the firm sees potential downside risk if the company's acquisition of IHOP Corp (NYSE: IHP) does not go through, following mixed reviews from Proxy firms.
Merriman downgraded shares of Fuel-Tech (NASDAQ: FTEK) to Sell from Neutral after channel checks indicated the competitive landscape is much more challenging than commonly perceived for the FUEL CHEM product line. Merriman sees significant risk to shares at current levels.
Angiotech Pharmaceuticals (NASDAQ: ANPI) was downgraded to Sector Performer from Sector Outperformer at CIBC and to Sector Perform from Outperform at RBC Capital.
In December, Siemens AG (NYSE: SI) disclosed questionable transactions in its telecom and power generation businesses totaling about $600M. Now that figure is estimated to be about four times that, according to the Wall Street Journal.
Microsoft Corporation's (NASDAQ: MSFT) new video game Halo 3 has generated about $170M in sales on the first day, according to the Wall Street Journal, setting a new record in the games industry.
Hedge fund Citadel Investment has disclosed it now owns 2.6M shares of Zale Corporation (NYSE: ZLC) for a 5.3 % stake in the company, or more than three times Citadel's position when it was last disclosed on June 30, reported Barron's Online's "Inside Scoop" column.
The Financial Times reported that Google Inc (NASDAQ: GOOG) is planning to expand it's staff by 33%, with most of the hiring in Europe.
OTHER PAPERS:
A U.S. senator is asking Medtronic Inc (NYSE: MDT) to explain payments the company has allegedly made to doctors, reported the New York Times.
WEBSITES:
According to multiple sources, IndyMac Bancorp (NYSE: IMB) has started downsizing its mortgage operations by offering voluntary severance packages to an undisclosed number of employees, reported TheTruthAboutMortgage.com.
This is the fourth update on the stock price status of the first seventeen Chasing Value companies. Closing prices are from September 14, 2007.
The first quarter produced amazing results but the second quarter was downright sad. No one will be surprised to see that anything touching constuction or finance took a bath. I own most of these stocks, so if you do too, I feel your pain. Anyone considering my commentary should "do their homework" too, as James Cramer says on his Mad Money TV show. These recommendations are from the first and second quarter 2007 and I have linked to the original stories.
Cemex sank with the continuous reports of the deteriorating housing market in the United States. In the meantime it continues to move forward with the integration of Rinker, the largest supplier of construction materials in Australia. This makes Cemex the largest in the world and sets the stage for continued growth in Southeast Asia. It also is continuing to focus on reducing debt.
Of all the stocks I have written about in the Chasing Value section, I feel that this one suffered the most from guilt by association. I believe it was fairly valued before and it is on sale now. This company, with it's PEG ratio at .83 and lowered, P/E, P/S, P/B (SEE: AOL Money & Finance) has a ROE over 22 and pays about a 2% dividend yield.
You really should watch Hilary Kramer: Market has further to fall, but there is opportunity in KDN, CBI, ACH to get some market perspective. The video was posted on August 21, 2007 and she makes some very good stock recommendations. Over the past 18 months that I have been looking at her picks versus those of James Cramer, I have found that you would have done better with Hilary.
While giving her full credit for her stock picking and market coverage I find I must strongly disagree with a statement she made. Cautioning viewers that " There is going to be a meltdown" is not overly alarming, but I take great exception to her stating that "This market can go down 25%." She shared her fear that there are 9000 hedge funds and that 3000 might close down.
It is possible that people may panic in certain circumstances and the market can stray into irrational short-term behavior once again, but I find her reasoning a little soft. Let's assume that the 9000 hedge funds own 50% of the total equity in the stock market (they don't) and one third go out of business, that would equate to a 15% collapse of value (unscientific, I know, but there is some correlation).
Today IndyMac Bancorp, Inc. (NYSE: IMB) reported that its quarterly loss was cut by 64% leaving investors with a small glimmer of hope... although the company has done a small about face. Previously IndyMac had suggested it might be possible to get back to profitability by the fourth quarter. They now are reporting that they probably will not report a positive quarter in 2008.
The earnings party of last week was full of fun and frolic. For the most part, if you followed my list of recommendations, you would have had your very own "Fiesta de Finance." (
Indymac Bancorp
My newest portfolio is my worst portfolio and the only one that is negative. How did this happen? The poison financials and my bad timing, that's how! It is embarrassing, to say the least, and I take no joy in reporting my blunders. I hope readers will appreciate the fact that I am willing to discuss everything and not just the bright spots..gif){kind=logo}
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Oil hits record $127.43 on supply concerns, raised Goldman forecast
Icahn's 'shock and awe' on Yahoo -- a gutsy play
Housing starts surprisingly rise in April on apartment construction
