BloggingStocks

Chasing Value: Financials risky but up 26%

Sheldon Liber — 2008-09-03T14:15:00+00:00

Filed under: Major movement, Good news, Competitive strategy, Citigroup Inc. (C), Merrill Lynch (MER), Wachovia Corp (WB), Washington Mutual (WM), Bargain stocks, Chasing Value, Lehman Br Holdings (LEH), Newcastle Investment (NCT), MBIA Inc (MBI), Gramercy Capital (GKK), E*TRADE (ETFC), East West Bancorp (EWBC)

It has been five weeks since I posted Serious Money: Tempting fate with 10 financials. The results of buying into the following pool of financial stocks at a time when the "hate 'em" factor was at a peak has been tremendous. The over all return has has been 26.3% with eight stocks up and two down.

For investors this might have been too speculative; for traders, they are probably grinning from ear to ear. For me -- we will see where we stand next year. As one of my colleagues reminded me, this is the real test, although I think there is reason for optimism.

The leader of the pack was MBIA Inc (NYSE: MBI), up 228%. In the absence of that gain the appreciation would have only been 3.5%. That beats all the indices but is not as dramatic.

Citigroup Inc. (NYSE: C) -- $18.45 down 63% from its 52 week high of $49.90; closed yesterday at $19.11, UP 3.57%
Lehman Br Holdings (NYSE: LEH) -- $16.88 down 75% from its 52 week high of $67.73; closed yesterday at $16.13, down 4.44%
Merrill Lynch (NYSE: MER) -- $26.25 down 67% from its 52 week high of $79.72; closed yesterday at $27.75, UP 5.7%.
MBIA Inc (NYSE: MBI) -- $4.92 down 93% from its 52 week high of $68.98; closed yesterday at $16.14, UP 228%.
E*TRADE (NASDAQ: ETFC) -- $3.06 down 84% from its 52 week high of $19.39; closed yesterday at $3.25, UP 6.2.
East West Bancorp (NASDAQ: EWBC) -- $12.46 down 67% from its 52 week high of $20.88; closed yesterday at $13.01, UP 4.4%.
Gramercy Capital (NYSE: GKK) -- $6.72 down 77% from its 52 week high of $29.45; closed yesterday at $6.80, UP 1.2%.
Newcastle Investment (NYSE: NCT) -- $5.88 down 72% from its 52 week high of $20.88; closed yesterday at $6.89, UP 17.18%.
Wachovia Corp. (NYSE: WB) -- $15.70 down 70% from its 52 week high of $53.10; closed yesterday at $16.65, UP 6%.
Washington Mutual (NYSE: WM) -- $4.43 down 89% from its 52 week high of $39.48; closed yesterday at $4.24, down 4.29%

In my original post I emphasized that you had to buy the pool for safety. During the last month, we have seen many stories about Lehman Brothers' demise or the collapse of a major bank like WaMu or Wachovia, and if that had happened the gains in MBIA would have made up for the total and complete collapse of any one of them. I have no reason to believe this is immanent. I do have reason to believe the opposite. During the last month I bought additional shares of WaMu, one of the two down stocks at $3.50 per share.

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 MBI, NCT & WM.

Permalink | Email this | Linking Blogs | Comments

Closing bell: Dow likes the GDP, sort of (MBI, FRE, FNM)

Douglas McIntyre — 2008-08-28T16:23:00+00:00

Filed under: After the bell, Federal Natl Mtge (FNM), Economic data, S and P 500, DJIA, NASDAQ, MBIA Inc (MBI)

The GDP number for the second quarter was revised up to 3.3% this morning. The market liked that, but not as much as people might have guessed. The Dow jumped up 200 points, which is substantial, but not an all-out rally.

The problem is probably that no one in his right mind thinks that Q3 and Q4 will be nearly as good. There is too much evidence of falling employment, rising prices, mortgage defaults, and slowing business spending. Being happy about the past is nice, but not when it is coupled with worry about the future. Below are today's unofficial closing bell levels:

DJIA: 11,515.18 (+1.85%)

NASDAQ: 1,300.65 (+1.22%)

S&P500: 2,411.64 (+1.48)

10-Year Bond: 3.7950% (+.0230%)

Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) continued their spikes up. The market is still enamored of the fact that the companies might avoid a government bail-out, which would wipe out common shareholders. Freddie was up about 10% and Fannie 15%.

The monoline insurers got a goose. MBIA (NYSE:MBI) said it would reinsure nearly $200 billion of municipal bonds backed by FGIC Corp. MBI shares jumped 34% to $16.14.

The excitement of the day boiled over into most of the financial stocks. Investors think there will be no recession. Bank write-off are over. All is well with the world.

Douglas A. McIntyre is an editor at 247wallst.com.

Permalink | Email this | Linking Blogs | Comments

Cramer on BloggingStocks: The SEC's waffling will be deadly

Jim Cramer — 2008-08-20T09:15:00+00:00

Filed under: Market matters, Merrill Lynch (MER), Federal Natl Mtge (FNM), General Mills (GIS), Amer Intl Group (AIG), Lehman Br Holdings (LEH), Cramer on BloggingStocks, MBIA Inc (MBI)

TheStreet.com's Jim Cramer says this administration's hallmark is coming too late to the party.

A headline came over the wires yesterday, and it caused me to throw my hands up in shock: The SEC is debating new short-selling rules for the market.

I said to myself, "They have to be kidding."

How can they be so obtuse?

How can they not get what is going on?

When the market bottomed on July 15, three things occurred:

the Congress got religion on the housing bill, and the president went along;

gasoline and oil peaked; and

the SEC finally decided to crack down on the reckless bear raids that were making it impossible for our financials to refinance.

The financials then rallied huge, just huge, and the prudent ones, like Merrill's (NYSE: MER) (Cramer's Take) John Thain, took advantage of the short-selling crackdown and first, brilliantly, said he didn't need capital, exacerbating the plight of the shorts, and then jammed on a gigantic equity offering that will let Merrill get through this period.

That alone was worth the price of the anti-manipulation ban.

Then, somehow, somewhere, in the bowels of the laissez-faire SEC, somewhere within the classrooms of academics they employ, someone had the bright idea that the anti-manipulation rules didn't do anything. The academics were abetted by a series of articles, clueless articles, informed by short-sellers, that the anti-manipulation ban didn't work!

I was aghast at this, given that the powerful rally off the July 15 lows clearly needed those rules to allow capital to be rebuilt. As soon as I saw the SEC didn't re-up the rules, I recognized that any financial that hadn't taken advantage of the momentary hike to first say it didn't need capital and then pull a Thain was in big trouble. That meant Fannie (NYSE: FNM) (Cramer's Take), Freddie (NYSE: FRE) (Cramer's Take) and Lehman (NYSE: LEH) (Cramer's Take).

Sure enough, some knucklehead talked to Jonathan Laing, a good reporter from Barron's, and basically said, "We are about to confiscate Fannie and Freddie, because they are undercapitalized." Given that the united stand had been that Treasury blessed the capitalization, at the same time that the shorts weren't allowed to create an unlimited amount of stock to hit down Fannie and Freddie (and that they were worried about upticks, even -- wow!), you suddenly had a total switcheroo. The SEC blessed manipulation down, and the Treasury favored destruction of the equity. We got what both wanted -- and I can't believe they wanted it -- on Monday.

Lehman, without the anti-manipulation rules, will ultimately be defenseless. As I said in New York magazine, it is just too easy to take down the stock and therefore the company -- Lehman is not General Mills (NYSE: GIS) (Cramer's Take). To analogize, you can't kill General Mills by manipulating the stock down. Financials need faith, need credit; almost no other stocks other than the autos and the airlines -- big consumers of credit -- need to be protected from manipulation.

So what does the SEC do? It tells people it is worried about manipulation again. Right when the earnings of financials are subpar and Fannie and Freddie and Lehman could be goners. I could include AIG (NYSE: AIG) (Cramer's Take), but that company wasn't protected anyway and is immolating on its own accord.

Put aside for a second that Fannie and Freddie may be worthless ultimately. Lots of stocks are worthless, but the entities behind them can recover long enough to make them worth something again, as we see from the resurrection of MBIA (NYSE: MBI) (Cramer's Take).

But we needed the breathing room, and the SEC provided it. Then the SEC moronically took it away. Now it wants it too late.

Just like everything in this administration -- the vacillating over interest rate cuts until it is too late, the dallying on the housing bill until it is too late, the people saying the fundamentals are sound when they are dire -- the SEC is gripped by the same indecision.

When coupled with the indecision of a Richard Syron at Freddie and the indecision of Dick Fuld at Lehman, the SEC's waffling has proven deadly. If only they had actually looked at the July 15 bottom and realized how much they were responsible for the breathing room, the SEC might have been able to save the taxpayers billions and spare the country of a series of bailouts and failures that will ultimately impact for billions.

Instead, they took counsel from people who didn't know how the markets work.

Now they are back noodling.

Too late.

Look what's happening.

Arson, aided and abetted from some knucklehead in Treasury who spoke to Laing -- that's a leak worth investigating -- and by the SEC's cluelessness.

-------------------------
RELATED LINKS:
Cramer: Lehman Is a Takeunder
Lehman Sinks on Writedown Fears
-------------------------

Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.

Permalink | Email this | Linking Blogs | Comments

Chasing Value: MBIA up over 120% - now what?

Sheldon Liber — 2008-08-18T12:48:00+00:00

Filed under: Rants and raves, Chasing Value, Stocks to Buy, Best Stocks for 2008, MBIA Inc (MBI)

Reporting on the daily appreciation of MBIA Inc. (NYSE: MBI) over the last few weeks has made me feel like a play-by-play announcer. One comment in an earlier post on MBIA raked me over the coals for writing when the stock was up 26%, only a few days after I suggested readers take a look at some crushed financials in Serious Money: Tempting fate with 10 financials. He did this even though on the day he commented it was up by 74%.

I was just reporting the jump but the reader took me to task for bragging when nothing should be judged so quickly, and my previous financial calls were bad. Well, MBIA has now leaped from $4.92 three weeks ago to $11.22 at Friday's close for a gain of 126%. This is BIG news even if it happened quickly -- in particular because it happened quickly.

The reasons may be numerous. Perhaps it is a combination of company stock buybacks and short covering. Perhaps it is the periodic comments in Barron's about the value of the company based on its current book of business and the fact it needs no new business to be profitable. In its last earnings report, MBIA did suprise to the upside substantially. Last Friday was certainly related to the fact that it was taken off the watch-list for the next three months as the ratings agencies supported MBIA's rating of AA.

MBIA has a current price-to-book of 0.26, a P/S ratio of 0.76 and P/CF of 1.57, so maybe it is still worth a look.

Update: Final, closed up to $11.83, $0.61, (+ 5.44%). MBIA stands at $140% gain.

Permalink | Email this | Linking Blogs | Comments

Earnings highlights: Wal-Mart, JCPenney, MBIA, Deere, Applied Materials and others

Trey Thoelcke — 2008-08-16T16:40:00+00:00

Filed under: Earnings reports, Wal-Mart (WMT), Estee Lauder (EL), Penney (J.C.) (JCP), Applied Materials (AMAT), Deere and Co (DE), Newcastle Investment (NCT), MBIA Inc (MBI)

Here are some highlights from this past week's earnings coverage from BloggingStocks:

Albany Molecular Research Inc. (NASDAQ: AMRI) topped estimates and raised its full-year guidance.
Applied Materials Inc. (NASDAQ: AMAT) Q3 earnings and revenues tumbled but beat low expectations.
Deere & Co. (NYSE: DE) fell short of Q3 earnings expectations due to rising materials costs.
Estee Lauder Cos. Inc. (NYSE: EL) posted strong Q4 results that led shares to a new 52-week high.
Fossil Inc. (NASDAQ: FOSL) posted better-than-expected Q2 earnings and lifted its full-year forecast.
JCPenney Co. Inc. (NYSE: JCP) Q2 profit slipped but still topped analysts' expectations.
LDK Solar Ltd. (NYSE: LDK) Q2 net income soared, easily beating analysts' estimates.
Liz Claiborne Inc. (NYSE: LIZ) rebounded from its tumble after its disappointing Q2 report.
MBIA Inc. (NYSE: MBI) posted strong Q2 results despite downgrades of its financial ratings.
Newcastle Investments Corp. (NYSE: NCT) despite negative earnings, it announced a quarterly dividend.
Nvidia Corp. (NASDAQ: NVDA) posted dismal Q2 results and announced a share buyback program.
Sysco Corp. (NYSE: SYY) Q4 earnings topped expectaitons on demand for bulk food products.
TJX Cos. (NYSE: TJX) strong Q2 results fell short of expectations, as did the Q3 earnings forecast.
Wal-Mart Stores Inc. (NYSE: WMT) topped Q2 estimates due to bargain seekers and international sales.

Also, Jim Cramer warns against bearishness on the financials and also suggests that the collapse of commodities will buoy earings.

For more highlights from this week, see: Abercrombie, Macy's, Kohl's, Sirius, UBS, Wachovia and others

Upcoming quarterly reports include Lowe's (NYSE: LOW), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), Target (NYSE: TGT), La-Z-Boy (NYSE: LZB), Saks (NYSE: SKS), BJ's Wholesale (NYSE: BJ), Limited Brands (NYSE: LTD), Barnes & Noble (NYSE: BKS), Burger King (NYSE: BKC), Gap (NYSE: GPS), Heinz (NYSE: HNZ), and Intuit (NASDAQ: INTU).

Visit AOL Money & Finance for more earnings coverage.

Permalink | Email this | Linking Blogs | Comments

Before the bell: Futures climb with dollar as oil declines; ADSK, KSS, JWN, ANF, JCP, MBI, ABK, MER ...

Melly Alazraki — 2008-08-15T08:18:00+00:00

Filed under: Before the bell, Earnings reports, Deals, Google (GOOG), Apple Inc (AAPL), Dell (DELL), Berkshire Hathaway (BRK.A), Market matters, Penney (J.C.) (JCP), Merrill Lynch (MER), Kohl's Corp (KSS), Abercrombie and Fitch (ANF), Economic data, Nordstrom, Inc (JWN), Oil, Union Pacific Corporation (UNP), MBIA Inc (MBI)

U.S. stock futures were higher Friday morning, indicating stock markets could possibly extend Thursday's rally as the dollar rose and oil prices fell further. The dollar continues to make gains on the back of growing evidence of global economic softness. Still, several economic readings are due out today, including the New York Empire State manufacturing index , capacity utilization and industrial production -- all before the opening bell.

Retail will be in focus today after two Kohl's Corp (NYSE: KSS) and Nordstrom (NYSE: JWN) reported late Thursday, and J.C. Penney (NYSE: JCP) and Abercrombie & Fitch (NYSE: ANF) are due to report before the opening bell.

Kohl's Corp shares could start higher as premarket indication has them trading 2.3% higher, while Nordstrom's are trading 4% lower in premarket action. Kohl's quarterly profit fell 12% from a year ago, but the retailer lifted its fiscal year profit forecast. Meanwhile, upper scale Nordstrom, reported a 21% drop in second-quarter profits and cut full year outlook.

ANF said second-quarter profit fell on lower sales of jeans and T-shirts and forecast full-year earnings per share that trailed some analysts' estimates. JCP also saw profit decline but beat estimates and issued lower guidance.

Autodesk (NASDAQ: ADSK) shares are trading 10% higher in premarket action after the design software maker reported stronger-than-forecast second-quarter earnings Thursday after the close.

Bond insurers MBIA (NYSE: MBI) and Ambac (NYSE: ABK) spiked 7.7% and 16.2% respectively premarket after Standard & Poor's affirmed its AA credit rating on the two companies and said further downgrades were unlikely.

Berkshire Hathaway (NYSE: BRK.A), the investment firm run by billionaire Warren Buffett, revealed a stake in the energy wholesaler NRG Energy (NYSE: NRG) and acquired additional shares of train operator Union Pacific (NYSE: UNP). NRG is climbing 5.7% in premarket trading.

Merrill Lynch (NYSE: MER) will institute a hiring freeze for the remainder of 2008, and will avoid paying UK taxes for decades after it charged $29 billion of losses to its London-based subsidiary, the Financial Times wrote.

Republic Services (NYSE: RSG) overnight rejected the takeover bid from Waste Management (NYSE: WMI), saying its proposed merger with Allied Waste Industries (NYSE: AW) is more favorable. It also is declining to have discussions and negotiations with Waste Management.

BuisnessWeek has an interesting article on the man Dell Inc. (NASDAQ: DELL) has put in charge of its entry to the digital entertainment market. The former Apple Inc. (NASDAQ: AAPL) executive will try to overtake Apple's dominant hold of the market.

The New York Times reports that T-Mobile will be the first carrier to offer a mobile phone powered by Google (NASDAQ: GOOG)'s Android software.

Permalink | Email this | Linking Blogs | Comments

Chasing Value: MBIA earnings, stock and litigation up

Sheldon Liber — 2008-08-11T14:41:00+00:00

Filed under: Major movement, Earnings reports, Rants and raves, Chasing Value, Stocks to Buy, Best Stocks for 2008, MBIA Inc (MBI)

After a rather nasty stock slide in earnings, share price and reputation MBIA Inc. (NYSE: MBI), the holding company for MBIA Insurance, has finally reported good news for its depressed investors; for the second quarter of 2008 the company's net income was $1.7 billion, or $7.14 per share, an improvement, compared with $211.8 million, or $1.61 per share for the corresponding period of 2007(see more earnings news).

MBIA is generating revenue from existing business but new business has been harder to come by since Moody's and Standard & Poors both downgraded the company from a financial rating of AAA to AA.

Since I recommended the stock on July 29, 2008 it is up 74% rising from $4.92 to the close last Friday of $8.57. It is trading mid-day at $8.80. I will update after todays close.

In other news the company has also announced a law suit against Bill Ackman who shorted the stock and made many public claims that MBIA was destined to become insolvent. MBIA (MBI) And Ackman: Killing The Messenger.

I have mixed emotions about this suit. On the one hand much of what Ackman said was true, about MBIA's risky business. But what was his motivation for making these claims so public, a very unusual and unnecessary activity? He was not a shareholder screaming for change, he was not benefiting shareholders by trashing the company and contributing to the demise of the stock. He only made money by his short position; a lot of money.

My general feeling is that unless Ackman can show some reason for screaming negative things about the company that had some purpose besides lining his own pocket, the case might have some merit. After all, if not for a run on the stock many a company would be able to pull itself out of financial turmoil.

UPDATE: Final $8.69, up +$0.12 (+1.40%)

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 MBI.

Permalink | Email this | Linking Blogs | Comments

Serious Money: Wisdom or folly -- 10 financials updated

Sheldon Liber — 2008-08-08T13:12:00+00:00

Filed under: Citigroup Inc. (C), Merrill Lynch (MER), Wachovia Corp (WB), Washington Mutual (WM), Lehman Br Holdings (LEH), Newcastle Investment (NCT), MBIA Inc (MBI), Gramercy Capital (GKK), E*TRADE (ETFC), East West Bancorp (EWBC)

Yesterday the Dow Jones Industrial Average was down 225, so I decided to peg the financial stocks I wrote about investing in as a pool. We are often accused of bragging on the good days and having memory loss on the bad so I wanted to be transparent and forthright on the downside.

To my surprise the financial stock pool is actually up 9.96% on average. Six stocks increased in value, two were down and two stocks were even money. The big winner was MBIA Inc (NYSE: MBI) up over 68%!

In the same time frame the DJIA has gone from 11,397.56 to 11,431.43 (even) and the S&P has gone from 1263.2 to 1266.06 last night, for basically no change either.

The market is rebounding as I write so I expect the news is even better. Although, this pool of stocks beat the market so far in the short run, I hope to track this group for a year, or at least until Major League Baseball's spring training opens in 2009.

If you want to track the story with me the first post was Serious Money: 10 finance stocks as the market bounces. I remain stubbornly optimistic that this is a buying opportunity and investors will be sorry they did not have the courage to buy stocks when they were hated. The follow-up was Serious Money: Tempting fate with 10 financials

The initial prices are as of July 29, 2008.

Citigroup Inc. (NYSE: C) -- Starting at $18.45 down 63% from its 52 week high of $49.90. Now $18.47 (even)
E*TRADE (NASDAQ: ETFC) -- Starting at $3.06 down 84% from its 52 week high of $19.39. Now $2.95 (-3.6%)
East West Bancorp (NASDAQ: EWBC) -- Starting at $12.46 down 67% from its 52 week high of $20.88. Now $13.46 (+8%)
Gramercy Capital (NYSE: GKK) -- Starting at $6.72 down 77% from its 52 week high of $29.45. Now $6.26 (-6.84%)
Lehman Br Holdings (NYSE: LEH) -- Starting at $16.88 down 75% from its 52 week high of $67.73. Now $17.67 (+4.68%)
Merrill Lynch (NYSE: MER) -- Starting at $26.25 down 67% from its 52 week high of $79.72. Now $26.10 (even)
MBIA Inc (NYSE: MBI) -- Starting at $4.92 down 93% from its 52 week high of $68.98. Now $8.28 (+68.3%)
Newcastle Investment (NYSE: NCT) -- Starting at $5.88 down 72% from its 52 week high of $20.88. Now $6.02 (+2.38%)
Wachovia Corp. (NYSE: WB) -- Starting at $15.70 down 70% from its 52 week high of $53.10. Now $17.12 (+9%)
Washington Mutual (NYSE: WM) -- Starting at $4.43 down 89% from its 52 week high of $39.48. Now $4.97 (+12.18%)

It bears repeating that I do not see any quick fixes or rapid business turnarounds, just a slow plodding attempt to return to equilibrium with the worst performing sector outperforming the overall market going forward. So far so good.

Permalink | Email this | Linking Blogs | Comments

Before the Bell: Market falls as oil prices slump and Fannie (FNM) slashes dividend

Jonathan Berr — 2008-08-08T09:18:00+00:00

Filed under: McDonald's (MCD), Boeing Co (BA), Federal Natl Mtge (FNM), Hormel Foods (HRL), MBIA Inc (MBI)

Stock futures were trading down as Fannie Mae posted its fourth straight quarterly loss. Investors were awaiting word from a government report on worker productivity to see if there is any sign of an economic rebound. Those figures, though, proved disappointing.

Bloomberg News reported that worker productivity in the U.S. grew at a lower-than-expected rate in the second quarter as employers cut jobs to weather the jump in raw-material expenses. "Employers eliminated 165,000 jobs from April through June to shore up profits, and still managed to get more output with fewer workers," the news service says. "Gains in productivity help lower inflation and bolster the Federal Reserve's forecast that prices will moderate."

Fannie Mae (NYSE: FNM) posted its fourth straight quarterly loss and slashed its dividend. The second-quarter net loss was $2.3 billion, or $2.54 a share. Excluding one-time items, the loss was $2.51 a share, compared with the 72-cent average estimate of 10 analysts in a Bloomberg survey. Shares tumbled more than 12% in pre-market trading.

MBIA (NYSE: MBI) swung to a profit of $1.7 billion, or $7.14 a share, on $3.32 billion in unrealized hedging gains, according to The Wall Street Journal.

Boeing (NYSE: BA) and Airbus are being hit with delays for their ultra-modern new aircraft by shortages of mundane parts such as seats and galleys, according to The Wall Street Journal. "The problem stems from small suppliers that have overcommitted to build equipment and didn't gear up production fast enough to deliver it," the paper said.

Higher commodities prices are hurting the bottom line of food companies such as Sara Lee (NYSE:SLE) and Tyson Foods (NYSE: TSN). Eventually, those costs will be born by consumers, according to the Journal. Meanwhile, McDonald's Corp. (NYSE: MCD) shares are called higher on better-than-expected July same-store sales. Hormel Foods Corp. (NYSE: HRL) fell on lackluster earnings.

Wal-Mart Stores Inc.'s (NYSE: WMT) run as the best performer in the Dow Jones Industrial Average may come to an end because of slowing sales at the world's largest retail company, according to Bloomberg News.

Read | Permalink | Email this | Linking Blogs | Comments

Worst 10-year performers: MBIA takes a triple-A nosedive on risky mortgage debt

Elizabeth Harrow — 2008-08-01T17:00:00+00:00

Filed under: Major movement, Bad news, S and P 500, Housing, MBIA Inc (MBI)

In this series, we take a look at the 25 stocks on the S&P 500 Index (SPX) that have turned in the worst performance during the past decade -- what went wrong, and what happens next. (See all 25).

While financial-services firms have been dragged down as a group for more than a year, few have flamed out with the spectacular ferocity of municipal bond insurer MBIA Inc. (NYSE: MBI). In fact, among equities listed on the S&P 500 during the past decade, only one stock has suffered a more severe plunge in share price.

What went wrong? At no. 2 on our list of SPX slackers, MBI lost 91% of its value during the decade that ended June 30, 2008. The stock peaked at $76.02 in January 2007, which marked the last in a series of higher highs for the formerly uptrending security.

MBIA's troubles first started in January 2007, though its issues at the time would pale in comparison with later challenges. Then, the company agreed to pay $75 million to settle civil securities-fraud charges by federal and New York State authorities. MBIA was accused of making secret side deals with reinsurance companies to avoid stating a $170-million loss in 1998. As part of the settlement, MBIA said it would restate earnings from 1998 through 2004 and improve its business and accounting procedures.

Pressure ramped up on MBIA when the credit crunch rattled world equity markets in the second half of 2007. The company insured collateralized debt obligations, or CDOs, saddled with subprime debt. As a bond insurer, MBIA was almost completely reliant on its triple-A debt ratings; after all, if you can't get a guarantee from an insurer, what's the point?

The triple-A ratings were never questioned in the company's early days, when it insured municipal bonds almost exclusively -- defaults were rare on these vehicles, to say the least. However, the CDO situation involved an entirely different risk level. By mid-2007, major investment banks had already written off billions of dollars in CDO losses, and investors began to wonder why MBIA should be any different.

Last December, Moody's said it was placing MBIA's triple-A ratings under review for possible downgrade. The ratings firm said that MBIA was "at greater risk of exhibiting a capital shortfall than previously communicated," thanks in no small part to the $11.09 billion in subprime mortgage debt to which it was exposed.

Now fully under fire, MBIA announced news of a $1-billion investment from private-equity firm Warburg Pincus. Last January, in a scramble to save its triple-A status, the company slashed its dividend and said it would sell $1 billion in debt to raise capital. The amount the bond insurer planned to raise seemed woefully inadequate in comparison with its losses; in its quarterly earnings release that month, MBIA reported a $3.5-billion write-down on its credit derivatives portfolio.

The pressure was also rising on ratings agencies. Many on Wall Street accused the firms of turning a blind eye to the heightened risk inherent with certain types of CDOs, thereby leaving institutions and investors vulnerable to massive losses. Moody's and Standard & Poor's capitulated, to an extent; both firms vowed to review MBIA's ratings. However, both eventually affirmed their existing opinions. Meanwhile, Fitch Ratings was not convinced, and stated that MBIA needed more capital to support its asset-backed securities. MBIA's response couldn't have done much to boost investor sentiment -- the battered bond insurer asked Fitch to stop issuing credit ratings altogether on its insurance units.

What next? After admitting that its ratings may have been handed out in a rather Pollyanna-ish fashion, Moody's attempted to save face by dropping MBIA's rating from triple-A to A2 in June. As a result, MBIA found itself selling municipal bonds to raise cash; the downgrade triggered a collateral call of $4.5 billion and termination payments of $2.9 billion on guaranteed investment contracts. A fund-raising bake sale seems like a none-too-distant possibility in the future.

Most recently, MBIA said it had approximately $1.15 billion in exposure to three securitizations of loans backed by IndyMac Bancorp, which recently failed. In its upcoming earnings report -- for which no date has yet been confirmed -- analysts expect an operating loss of 94 cents per share.

Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the weekly video series Option Basics on SchaeffersResearch.com.

Permalink | Email this | Linking Blogs | Comments

Chasing Value: MBIA up over 20% -- no joke!

Sheldon Liber — 2008-08-01T12:31:00+00:00

Filed under: Major movement, Good news, Money and Finance Today, Chasing Value, Stocks to Buy, MBIA Inc (MBI)

Several of my editors and colleagues have commented about me sticking my neck out calling the bottom of the market two weeks ago and then suggesting it's time to buy the financial sector, (see: Serious Money: Tempting fate with 10 financials ) however, I stand by this theme and this morning MBIA Inc. (NYSE: MBI) is lending support to the idea.

MBIA closed yesterday to end the month at $5.93 and is up 24% to $7.36 as I write at 9:04 AM, PST. The stock is down 90% from it's 52-week high of $68.98. They have announced an earnings conference call for August 8, 2008.

The company is still losing money giving it a negative P/E. However, it ~~is maintaining a substantial dividend~~ cut the dividend in February (Yahoo and AOL still show TTM) and Barron's has repeatedly noted that if this company does not get crushed by it's leverage, it's projected revenue based on existing book with no new business might make this a $40 dollar stock. I have not done their level of analysis so my recommendation was based on the pool of ten stocks and only a few of them bouncing back.

The story is worth following so look for an update later and another report next week. UPDATE: Today's closing numbers $7.67, up $1.74 +29.34%

Permalink | Email this | Linking Blogs | Comments

Serious Money: Tempting fate with 10 financials

Sheldon Liber — 2008-07-30T13:52:00+00:00

Filed under: Major movement, Market matters, Citigroup Inc. (C), Merrill Lynch (MER), Wachovia Corp (WB), Washington Mutual (WM), Serious Money, Lehman Br Holdings (LEH), Stocks to Buy, Newcastle Investment (NCT), MBIA Inc (MBI), Gramercy Capital (GKK), E*TRADE (ETFC), East West Bancorp (EWBC)

After the market closed last night, with the Dow Jones Industrial Average rebounding from Monday's notable drop and ending the trading day at 11,397.56, up 266.48 (+2.39%), I posted Serious Money: 10 finance stocks as the market bounces. This is the follow-up post listing the full pool of speculative stocks that as a group I believe will beat the overall market in the next 12 months.

The prediction business is thankless and the speculative business is even worse; it is often painful. I usually refrain from this activity but today I play the contrarian in a Sir John Templeton (RIP) sort of way, jumping into the stock market's worst performing sector with both feet. I believe the market is at or near a bottom and this summer is the time to buy.

Looking for a break in the clouds, yesterday I started choosing ten stocks knowing that three or four may go to zero, a few more will survive with modest gains, and three or four will rise, not returning to their old glory soon but more than covering the ones that fail. The first four picks have been bleeding all over Wall Street for a year now and the blood-letting is not done yet.

Initially I was looking for stocks that had fallen at least 70%. After reviewing my figures, I have compromised and changed that to 63% so that I could include some of the major companies like Citigroup Inc. (NYSE: C) that are broadly held and have strong reader interest. Prices are as of July 29, 2008.

Citigroup Inc. (NYSE: C) -- $18.45 down 63% from its 52 week high of $49.90.
Lehman Br Holdings (NYSE: LEH) -- $16.88 down 75% from its 52 week high of $67.73.
Merrill Lynch (NYSE: MER) -- $26.25 down 67% from its 52 week high of $79.72.
MBIA Inc (NYSE: MBI) -- $4.92 down 93% from its 52 week high of $68.98.

As previously stated, I am not recommending any single one of these dismal performers, but I am suggesting the pool of ten as an index of sorts. The following six stocks round out the group:

E*TRADE (NASDAQ: ETFC) -- $3.06 down 84% from its 52 week high of $19.39.
East West Bancorp (NASDAQ: EWBC) -- $12.46 down 67% from its 52 week high of $20.88.
Gramercy Capital (NYSE: GKK) -- $6.72 down 77% from its 52 week high of $29.45.
Newcastle Investment (NYSE: NCT) -- $5.88 down 72% from its 52 week high of $20.88.
Wachovia Corp. (NYSE: WB) -- $15.70 down 70% from its 52 week high of $53.10.
Washington Mutual (NYSE: WM) -- $4.43 down 89% from its 52 week high of $39.48.

These companies have lost billions of dollars over the last year in cash and shareholder equity. I do not see any quick fixes or turnarounds, just a slow plodding attempt to return to some sort of equilibrium. As that happens, I expect the worst performing sector to outperform the overall market going forward.

Permalink | Email this | Linking Blogs | Comments

Serious Money: 10 finance stocks as the market bounces

Sheldon Liber — 2008-07-29T18:02:00+00:00

Filed under: Major movement, Rants and raves, Berkshire Hathaway (BRK.A), Market matters, Citigroup Inc. (C), Money and Finance Today, Merrill Lynch (MER), Serious Money, DJIA, Lehman Br Holdings (LEH), Stocks to Buy, MBIA Inc (MBI)

Today the Dow Jones Industrial Average bounced back from yesterday's poor showing. It ended the trading day at 11,397.56, that's plus 266.48 (+2.39%) returning more than it had lost only 24 hours ago.

There are plenty of prognosticators explaining why this happened and so I am not going to join the crowd this afternoon with my own version. Leave it to say we are in a period of uncertainty where investors and traders alike are a bit jumpy. We did have a 5.4 magnitude earthquake today in Southern California, only fitting for this type of market.

In the meantime I have been wondering how to take advantage of the lousy situation in the financial sector of the market. How can I maximize my gains and control risk at the same time? I guess we are all trying to do this, but few will appreciate my contrarian, 'no guts no glory' approach.

I think you have to be buying banks and investment companies and I have decided that ten is the right number. Sir John Templeton (RIP) is the catalyst for this notion. I am already on record (Serious Money: More signs the market has bottomed) that this is the time to be selectively buying and 'my pal Warren' said as much at the Berkshire Hathaway (NYSE: BRK.A) annual meeting when he suggested the financials have seen the worst of the storm.

The maximum gain is to be had by buying the worst performers while everyone else still hates them. But this brings risk and I have already seen this strategy fail with IndyMac Bancorp, so why continue the foolishness? Because, IMB did not have to fail and because there is some luck involved. So I will choose ten stocks knowing that 3 or 4 may go to zero, a few more will survive with modest gains, and 3 or 4 will rise not returning to their old glory soon, but more than covering the ones that fail.

I could just buy a sector fund or ETF, but that would not be the same because it would also include the stronger companies and reduce the upside. It would be a reasonable approach, but I am not looking to be too reasonable, I want to beat the market.

Here are the first four of the sad companies that have reported billions and billions of dollars of losses, and counting; and had their stocks pummeled. All of them have had someone question the viability of these companies sometime over recent months.

Citigroup Inc. (NYSE: C)
Lehman Br Holdings (NYSE: LEH)
Merrill Lynch (NYSE: MER)
MBIA Inc (NYSE: MBI)

One of my criteria is that the stocks must have lost at least 70% of their value over the last year to be included. Shareholders of these four would be happy to have only lost that much. Remember, I am not recommending any one of these disaster stocks I am recommending a pool of them. Maybe I'm playing with fire and maybe not. This will be a running series.

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 BRK.B and MBI.

Permalink | Email this | Linking Blogs | Comments

Cramer on BloggingStocks: The breadth of the danger is staggering

Jim Cramer — 2008-07-15T08:56:00+00:00

Filed under: Bad news, Industry, Ford Motor (F), General Motors (GM), Market matters, Citigroup Inc. (C), Advanced Micro Dev (AMD), Regions Financial (RF), AutoNation Inc (AN), Bank of America (BAC), BB and T (BBT), Merrill Lynch (MER), Sears Holdings (SHLD), Federal Natl Mtge (FNM), Comerica Inc (CMA), D.R.Horton (DHI), Amer Intl Group (AIG), Lennar Corp'A' (LEN), Southwest Airlines (LUV), Wachovia Corp (WB), Washington Mutual (WM), IndyMac Bancorp (IMB), Lehman Br Holdings (LEH), Cramer on BloggingStocks, MBIA Inc (MBI)

TheStreet.com's Jim Cramer says our problems are so widespread, he sees lots more IndyMacs before we're out.

You don't need me to tell you it's awful out there. You don't need me to tell you that there's no quick fix for any of these things. But what might help you understand why it feels so bad this time is that I have never, in my career, seen so many companies go off track at the same time. This is one unbelievable moment, and it is made more horrible by the day as companies' stocks just get pummeled, causing people to then question the very viability of the companies involved.

First, obviously, are Fannie Mae (NYSE: FNM) (Cramer's Take) and Freddie Mac (NYSE: FRE) (Cramer's Take). We don't know what will happen, but we do know that their futures are much darker than their pasts. Their best hope: a Democrat becomes president and shows the usual love to both. But as investments, they are pretty much perma-losers going forward. The losses are that heavy. Yes, it is true that two years from now they will be better, but will the government let them limp through to that? View them as calls on a Democratic win.

We all know that Citigroup (NYSE: C) (Cramer's Take), Wachovia (NYSE: WB) (Cramer's Take), Washington Mutual (NYSE: WM) (Cramer's Take) and National City (NYSE: NCC) (Cramer's Take) are in trouble. Bank of America (NYSE: BAC) (Cramer's Take) says it isn't in trouble, but obviously the market doesn't believe management because the stock failed to rally when it said its dividend was safe. Any short-selling hedge fund could hire 30 actors and have them line up at a Washington Mutual or two and get a bank run going. Then we would have to hear about a "hasty" Treasury department plan to bail out WM. Hasty? How can these guys not see it coming?

No revelation that Lehman (NYSE: LEH) (Cramer's Take) or Merrill's (NYSE: MER) (Cramer's Take) in the soup, although I do marvel that at no price do they seem interesting to anyone -- value guys, takeover guys, or acquirers in general. But how about Comerica (NYSE: CMA) (Cramer's Take), Regions Financial (NYSE: RF) (Cramer's Take), Sovereign (NYSE: SOV) (Cramer's Take), Huntington Bancshares (NASDAQ: HBAN) (Cramer's Take), Suntrust (NYSE: STI) (Cramer's Take), Fifth Third (NASDAQ: FITB) (Cramer's Take), First Horizon (NYSE: FHN) (Cramer's Take), Marshall & Ilsley (NYSE: MI) (Cramer's Take), Zions (NASDAQ: ZION) (Cramer's Take), Key (NYSE: KEY) (Cramer's Take), Colonial (NYSE: CNB) (Cramer's Take) and BB&T (NYSE: BBT) (Cramer's Take)? Their charts are indicating there is much more devastation ahead. Every one of them is small enough to fail, and no one would give a darn. If the FDIC follows the trail blazed by IndyMac (NYSE: IMB) (Cramer's Take) it would be great because IndyMac Federal isn't foreclosing anymore. Get rid of the foreclosures, get rid of some of the overhang. But is that the plan, or do they have no place to put the foreclosed loans?

We know that the Gang of Four -- MBIA (NYSE: MBI) (Cramer's Take), MGIC (NYSE: MTG) (Cramer's Take), PMI (NYSE: PMI) (Cramer's Take) and Ambac (NYSE: ABK) (Cramer's Take) -- has been obliterated, a long-running saga of puffing by management and disastrous numbers. These companies are important, even if everyone seems to think that they have gone down without much repercussion other than the 40th story about how private mortgage insurers are now raising rates. Golly gee, who is paying them anything? They don't have enough money to pay the bank back for heaven's sake!

For example, they are very important to AIG (NYSE: AIG) (Cramer's Take), which seems to have found no bottom. None at all. Remember that funny dividend boost at AIG? What was that about?

There are tons of other financial insurers no one's paying attention to that seem to go down pretty constantly. An outfit like XL (NYSE: XL) (Cramer's Take) seems like it is a wasting asset. Or how about Genworth (NYSE: GNW) (Cramer's Take), which is selling well below book value?

Then there is everything auto, not just Ford (NYSE: F) (Cramer's Take) and GM (NYSE: GM) (Cramer's Take) (although do you really need anything else to go wrong there?) -- outfits like Visteon (NYSE: VC) (Cramer's Take) or Autonation (NYSE: AN) (Cramer's Take) or Carmax (NYSE: KMX) (Cramer's Take) aren't going to get through this one unscathed.

Or how about the homebuilders? Does anyone think that Hovnanian (NYSE: HOV) (Cramer's Take), Lennar (NYSE: LEN) (Cramer's Take), Pulte (NYSE: PHM) (Cramer's Take) and Horton (NYSE: DHI) (Cramer's Take) will all make it? I don't. How about that nifty Lennar upgrade by UBS? Sold to you, UBS (NYSE: UBS) (Cramer's Take), along with all of the toxic mortgages you STILL OWN!

I am not even going to include the airlines, they are all hopeless in my opinion, except for maybe Southwest (NYSE: LUV) (Cramer's Take). They are charities.

Other areas have problems -- retail has some busted stocks, and so do restaurants. Chico's (NYSE: CHS) (Cramer's Take)? Charming Shoppes (NASDAQ: CHRS) (Cramer's Take)? How about Macy's (NYSE: M) (Cramer's Take) -- where's that headed? Sears (NASDAQ: SHLD) (Cramer's Take)? OUCH!

You can see some techs folding, but only a handful. Maybe because only AMD (NYSE: AMD) (Cramer's Take) is on the fiscal ropes do people see "relative strength" in tech, whatever that means.

The problem is that the dire stocks, the ones I have listed, are so numerous and so concentrated with so little hope for rescue that it is hard to imagine anything but more downside for these stocks and therefore more downside for the rest of the market, simply because they are so glaring, are owned by so many mutual funds and have so many roles to play in the real economy.

We know that things have gotten out of control because the IndyMac collapse -- widely predicted -- used a huge amount of the surplus the FDIC has, suddenly making the safety net seem like a flimsy piece of Brawny.

The bottom line here -- there is too much going wrong right now, too much to put us anywhere near sound footing. I suspect that every rally will be met with selling until we see a multitude of collapses like IndyMac.

I am not going to search for positives in any of these groups yet, and if they rally off the decision by the Treasury to make more explicit the Fannie and Freddie guarantees, I would scale out of them once again on any short squeeze like the one we had at yesterday's opening.

Someone asked me yesterday, "When do we bottom?" I said it wouldn't be until all the banks that have to fail do so and GM files bankruptcy along with Ford. I said it matter-of-factly, because I meant it and because it is obvious.

--------------------------------
RELATED LINKS:
IndyMac Insurance Tab Could Hit $8B
Fannie, Freddie Plan Staves Off Housing Disaster
--------------------------------

Jim Cramer is a director and co-founder of TheStreet.com. He contributes daily market commentary for TheStreet.com's sites and serves as an adviser to the company's CEO. At the time of publication, Cramer had no positions in the stocks mentioned.

Permalink | Email this | Linking Blogs | Comments