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Jan 11

Progress being made on the Hovnanian Preferreds

I wrote up my position in Hovnanian preferreds (HOVNP) in April 2013, so a little over 9 months ago. During that time the preferreds have went on a round trip to nowhere, peaking out at $18 in the summer before falling back to $14 in the last few weeks of the year.

I waited patiently through most of the year, not adding to my position but not reducing it either. When the preferred shares touched the $14’s though, I decided to add with the rationale that we are another year closer to the housing recovery.

I didn’t, however, put in any new work before my purchase. I took the lazy way out, falling back on the thesis of choppy but improving fundamentals of the housing market and my work from nine months earlier that suggested that by 2014 Hovnanian should cross the fixed interest coverage restriction that has kept them from paying interest on their preferreds.

This week I filled the void and did some work on the progress made by Hovnanian. In the table below I have calculated the interest coverage ratio that restricts dividends on the preferreds. If you want the language of the preferred document you can go back and read my original comment but in simple terms it is a ratio of consolidated cash flow from operations (so cash flows that do not include cash from unconsolidated subsidiarie) to the interest paid during the period. That ratio has to be above 2.0 for the previous 12 months before Hovnanian can reinstate payments on the preferreds. Read more

Jan 5

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New Positions in Supercom and PNI Digital Media

I took starter positions in a couple stocks in the last month. The descriptions I wrote below took up a bit more space than I expected so I’ve relegated them to their own posts rather than include them in the monthly update. In both of cases the stocks are micro-caps and not without their flaws, so I expect to be following my usual wait and see approach; take a small position, watch the story play out, and add to that position if it does.

Supercom (SPCB)

The idea for Supercom came by way of this SeekingAlpha article, which does a pretty good job of describing the idea. I say pretty good because I think the article exaggerates the thesis somewhat. And given the market’s own tendency to exaggerate when it comes to SeekingAlpha thesis with small cap stocks, that might be a reason not to chase this one. I bought the stock at $4.68 and only 3 days later I’m up over 10%.

Supercom produces RFID’s for and electronic ID’s for public safety, healthcare and homecare, animal and livestock management. They also produce electronic ID’s, used by countries to manage citizen identities. The company recently acquired a close competitor, the Smart ID division of On Track Innovations. The stock shot up in the summer after news of the transaction because of the expectation of synergies which should result in improved financials. Below is a table that I stole from another SeekingAlpha report. It demonstrates the degree to which the combined company will benefit. Read more

Jan 5

Week 131: Flat on my Back

Portfolio Performance

See the end of the post for the current make up of my portfolio and the last four weeks of trades.

Recent Developments

Its been a very quiet month and you can count the number of trades that I made on both hands. I was away for some time, there were holidays, and I was laid up with back problems for over a week.

Being laid up and not able to do much of anything reminded me of the importance of giving myself time to think. There are so many ideas to chase down, so many angles to look at, its easy to spend all one’s time doing and no time thinking about what else you might be doing.

It was that thinking that brought me to the idea about Pacific Ethanol, which I wrote about here. Pacific Ethanol was a story that I had been reading posts on the Investorshub message boards for a while, but because I hadn’t really stopped to think about the idea, it remained just a stock that I didn’t understand that kept going up. Read more