Week 73: A short update

Portfolio Performance

(Note that I am now posting my portfolio composition and list of trades at the end of the post)

Update

This is going to be a short update.  I wanted to get this out over the weekend but did not have time.  The performance snap-shot is as of last Friday, so it does not include the rather impressive moves that occurred yesterday in Impac Mortgage (IMH), Nam Tai (NTE) and Equal Energy (EQU).  To just briefly touch on what happened yesterday, a fund named Iszo Capital announced a 6.2% position in Impac Mortgage after the market closed yesterday.  As for Nam Tai, the company released a video on their website that suggested sales could hit $300 billion per month in the future.  This would be quite the jump from current levels, as the company did $380 million in sales in the third quarter.

As for the last three weeks…

I decided to let go of both Mart Resources (MMT.v) and Eacom Timber (ETR.v). In both cases, the move was precipitated by a lack of time to devote to studying each company. I’ve found myself consumed by the mortgage sector and I just haven’t had time to wrap my head around the recent news from Mart, and likewise while I have begun to research the lumber stocks, my purchase of Eacom was premature, and until I can model out what sort of volume increases the company might see in the next year, and get a better grasp of the sensitivity to price increases, I feel like I am swinging in the dark here. So I sold for now, and will continue to investigate.

Adding to Newcastle

I added to Newcastle Investments (NCT) a couple weeks ago as it dropped close to $7. I have listened to the third quarter conference call a couple of times.  The company has expanded into the senior housing sector and is planning to continue that expansion by buying up smaller players for consolidation.  They expect that they will achieve cost savings through the consolidation that will lead to 20%+ ROC.  The mortgage servicing rights continue to perform well; in particular the prepayment rates on the pools Newcastle owns have been far below the projections.  The company began to talk about spinning off the MSR and non-agency business from the senior living and CMBS side.

At a little over $7, or where I added, Newcastle returns over a 12% dividend.  This compares to single digit dividend at Home Loan Servicing Solutions (Ocwen’s partner that performs a similar MSR business) and a 6% dividend at many health care REITS.  In answer to a question on the conference call about splitting the company into two, Newcastle management repied, “I do think that we are one significant investment or one material capital raise away from being able to do something like that, so in my mind, given what we’re trying to accomplish in the quarter, that could be something that happens here early next year if we do what I expect to.”  I think this sort of spin-off could be the catalyst the company needs to bring its share price up to a level where its dividend is more in-line with its peers.

Out of Nationstar (for a few minutes anyways)

I already wrote my reasons for selling out of and then buying back into Nationstar Mortgage Holding (NSM) in my post on PHH. I will only add here that I continue to look for a point of further re-entry in the stock, and probably would do so around my original sell point of $25.

Readjusting a few positions

I try to track my portfolio on-line to one of my trading accounts as exactly as possible. Nevertheless, over time discrepancies arise because I don’t always buy or sell the exact same fraction of securities in the practice account as I do in the on-line account.

The list of trades on the 14th of November, with the exception of the purchase of MBIA and some of the purchase of Newcastle, were to correct these allocations. In particular, the practice portfolio had too much Radian, Atna, Hovnanian and Nationstar, and not enough Newcastle, Phillips 66 and Avenex. With these transactions complete, what you see now in the practice portfolio is representative of my actual allocations again.

House Keeping

I did a little house-keeping by transferring $45,000 Canadian dollars out of the CDN dollar side of the practice account and then transferred $45,000 USD into the USD side of the practice account. The practice account initially started out with $100,000 in the Canadian dollar account and no dollars in the US account, and so with all the US stocks I have been buying I had developed a large deficit on the US side. I’m not totally sure whether I get charged margin fees on the practice account, but just in case I wanted to reduce the difference, and this transfer did that.

Portfolio Composition

Note: I am adding all new US stocks I purchase to the US holdings side of the account. However in the past I added all stocks on the Canadian side of the account, and so there are still a number of US stocks that are listed there. I can’t move these stocks from the CDN to the US side of the account without losing the gain/loss information so that is why they remain there.

Click here for the last three weeks of trades.