Reminiscences of a Stockblogger

May 18

The Hidden Values of Ambac (AMBC)

I started a position in Ambac this week. While I still have more work to do on the company, I’ve done enough to think its worth a starter position. As usual, it will grow as the stock trends up and if events arise that validate the thesis behind my purchase. I first got the idea for the stock after having read Christian Herzeca’s blog post that points to the benefit Ambac has accrued from MBIA’s legal trailblazing.

Much like every other company with a ticker the stock ran away from me on Friday and is already a couple of bucks above where I bought it. Yet despite the move, I don’t think this is a scenario you have to rush into. The catalysts to stock appreciation are all going to take time to play out:

A business plan that realizes the benefits of past net operating losses
Reversals of their RMBS loss reserves
Trial wins and/or settlements that add to shareholder value

About the only possible short-term catalyst I can imagine is if the company finds a merger partner that can take advantage of its NOLs. And given that the company is fresh out of bankruptcy, I doubt that is going to happen overnight. Read more

May 9

8 Comments

Updates on a few positions during a very busy week

This last week has been jam packed full of news, earnings and outsized moves. I don’t think I have ever had as many 10%+ days for stocks that I own (or have recently owned but unfortunately sold) as I did in the last week. While some of these moves do not seem attributable to any specific news (such as First Mariner and Atlantic Coast Financial) most of them do. And while I have not had time to fully digest all of the news (I haven’t had time to review what announced spin-off for IDT and so therefore won’t be touching on that) I did want to discuss the stocks that I have reviewed and can comment on in the paragraphs below:

MBIA (MBI)

I sold out of MBIA in all but one account about two weeks ago, which is unfortunate timing given what has transpired. Nevertheless I had my reasons, they remain valid, and you gain little by looking back at bad luck. When the stock dipped into the $13’s on the day of the announcement I was really surprised, I mean the Bank of America deal was what we had all been waiting for, but I took advantage of the opportunity and loaded up the truck with stock. Therefore MBIA is a large position for me right now – it seemed very close to a sure bet in the mid-13’s and so I bought 11% position, going on some margin to do so.

At some point shortly I am going to have to reduce that position (I’m uncomfortable with it being this large) but I am waiting for at least the conference call tomorrow to do that. And what I do with my shares will really depend on what is said – in particular what management says about structured unit on call. They may come out and say that they have commuted the worst exposure, the unit isn’t going to regulator, and they expect to realize ABV of $10 from it. In that case maybe MBIA is worth quite a bit more than National alone. We shall see. Read more

Apr 28

8 Comments

Week 95: Setting the table (hopefully)

Portfolio Performance

See the end of the post for a full portfolio breakdown.

Update

Since my last update I exited Radian Group, Arkansas Best and MBIA. The sales reflect a desire to redeploy cash in other opportunities as well as some lingering concerns about each company.

With Arkansas Best, its my uncertainty about the outcome of union negotiations. The negotiations were extended this week for a second time. An escalation to a strike does not seem out of the question. If a strike occurs the stock price may or may not get hit; while a positive resolution could be quite good for the stock in the long-run (see my original post about how Arkansas Best would benefit from a contract structured in a similar manner to the one that YRC Worldwide operates with) the uncertainty may drive panic selling. I’ve decided to wait this one out for a few weeks and see how it plays out. Read more

Apr 27

2 Comments

One Poor Decision with ChipMos, Hopefully not Another

I took a ~3% position in ChipMOS Technologies (IMOS) last week. It hasn’t quite worked out the way that I had hoped. I’ve had a tiny starter position in the stock for a while, but I up-sized that position significantly when I added at $16 last week. It closed at a little under $15 on Friday. As I wrote in an email to a friend:

I overreacted with IMOS. Totally misread the TW emerging market exchange listing. Thought the closing price of 8150 was a game-changer event. Not so much.

Perhaps not as eloquent as I would like but it gets the point across. I’ll elaborate below.

ChipMOS provides assembly and testing for memory and logic/mixed signal semi-conductors. The following diagram illustrates where ChipMOS fits into the semi-conductor manufacturing process.

In 2012, the company derived 29% of revenue from testing of memory semi-conductors, 33% of revenue from assembly of memory semi-conductors, 23% from testing and assembly of LCD semi-conductors, and 16% from bumping (gold plating) of semi-conductors.

The company generated about $200 million in EBITDA last year and has an Enterprise Value of about $430 million (their cash position is about the same as their debt) which makes the company cheap on an EV/EBITDA basis. While ChipMOS doesn’t look quite as good on an earnings basis (they earned 94c per share on a GAAP basis last year) that number will improve going forward as their depreciation expense declines significantly (depreciation was $157 million in 2012 but should be nil by the second half of 2013).

A key point with ChipMOS is that the stock trades at a significant discount to its competitors on the Taiwanese exchange. ChipBond, which is a close competitor, trades at a 50% premium on a earnings basis, and, according to one brokerage report, a 200% premium on other industry metrics.

The primary reason for the premium seems to be nothing more than the Taiwanese exchange listing. The catalyst with ChipMOS is therefore a listing later this year for its Taiwanese subsidiary, of which ChipMOS owns 83%.

The first step in that process took place last week when the ChipMOS subsidiary was listed on the Taiwanese emerging markets exchange, which is a junior exchange. Stock quotes can be accessed on Bloomberg with the trading number 8150.

The stock opened with a bang. The original pricing on 8150 was $15tw. On the first day of trading the shares opened at $20tw and closed at $40tw. Since that time they have settled back to $33tw.

The $40tw price implies a value of $33USD for ChipMos shares on the NASDAQ. The current price of $33tw translates into a price of ~$27USD for ChipMos.

Presumably this gap will narrow. One of the reasons it has not is because the float on the subsidiary is quite small (ChipMOS did not release a large amount of shares for trading because of the low offer price. It was testing the waters), the volumes are tiny, which limits any arbitrage between the two companies, and its still not trading on the main Taiwanese exchange.

I jumped the gun when I bought into the run-up after the first day of trading of the Taiwanese sub. At the time I thought that the price of the sub would be enough to validate a higher price for the NASDAQ listed equity. That wasn’t the case. My spidey-senses seem to be a little off lately; I have been having a tendency of wrongly predicting the market reaction, both to the high and low side, of late. But that’s another story.

Nevertheless, the story remains intact, even if it will not be realized as quickly as I had hoped. I am going to hold my shares with the hope that the re-valuation occurs in the weeks and months ahead, as we come closer to a listing on the main Taiwanese exchange.