BOFI - Beautiful bank earnings once again...

Third quarter earnings up 172% - BOFI - Bank of Internet parent - is still our largest holding. Things are looking nice. Great interest spread. New loan origination business. And most importantly, a solid balance sheet (unlike most banks). Bank of Internet is the 21st century neighborhood bank - reaching across the entire country.

LS Starrett - Extreme Value or Value Trap?

I have been accumulating a few shares of Starrett SCX - as the price declines towards oblivion. Now trading less than 1/3 tangible book value (and still profitable). This has been a nice dividend payer for its entire "publicly traded" life span (this is a 120 year old company). So could the dividend be cut? Sure. Could they have a loss next quarter? Considering the economic climate, more than likely. But if the company is liquidated at present I believe it is worth a heck of a lot more than current market cap... Think Buffet or Graham. Disclosure: Long SCX and buying more as she drops.

BTW - I first heard of Starrett when I was just out of high school, working with precision tools in the Auto Sector in Detroit. Every shop had quality, American made Starrett gauges and tools laying on the benches.

BOFI - Blowout earnings...

BOFI Holding, parent of Bank of Internet (BOFI) had an excellent quarter. Now is the time for conservative financial companies to shine. While other banks have been wallowing in a sea of red, BOFI is taking advantage of the market. They increased their interest margin to almost a 3% spread. Their asset quality still looks great, especially considering we just entered a melt down in the greater economy. The forward P/E is now around 3.5. Book Value is close to $9.

Disclosure: BOFI is our largest individual stock holding.

FPP Tender Offer for Basic Earth - BSIC

According to this press release from FPP, the company is attempting to swap FPP shares on a 2 to 1 basis for BSIC shares. From the current price of FPP - about $2.50 - this would mean $1.25 for BSIC shares. BSIC shares popped during the day of the offer and closed off the high at around .90.

At this point I am fairly indifferent about the offer, as I have always felt FPP to be overvalued compared to BSIC. I had been buying Basic around 60 to 65 cents lately and had orders in for more. At 90 cents it is more likely that the market is putting a $1.80 value on FPP. The best opportunity at the moment would be to short FPP and long Basic. However I have been unable to short FPP as it is below $3.

So I suppose I will just wait and watch, and perhaps buy more BSIC if it drifts lower from here. FPP wants controlling interest but I do not see how they will get 51% of shares tendered. They will most likely end up as a minority shareholder and thats about it (unless the deal changes)...

*****Update: I have sold all of my shares of BSIC between .90 and .94 cents. Currently the stock is trading somewhat in lockstep with the price of FPP (although at a discount as previously discussed). I am hoping at this point that BSIC management and board will issue a statement saying that they will not take part in the tender and they suggest shareholders do the same. I will buy back BSIC if we float lower again...
******Update2: Basic Earth created a poison pill. Hopefully this chases FPP away for a little while and allows the stock to float back down to the .50 to .70 range (where I will most likely start loading up again).

Cheaper than dirt...

There are some absolute steals in the small and mid cap market. During the market crash of October I have purchased SCX - LDL (in and out) - BOFI - LUB - and traded market etf's like DIA and SPY. Value investors are picking through the rubble. I am digging alongside.

I am not so sure that this rally is real. We may see a short term bounce for a couple of weeks but I am expecting to see the lows of 2002-03 by December or at least a re-test of Dow 7800.

When profitable companies are trading at less than 1/2 tangible book value they are certainly worth a look. And even though the risk of a lower market exists I can't help myself: I need to buy a little bit. Try DXD or some other market ultrashort for a hedge. That way if the sky starts falling again you can at least cash in some on the way down...

Fannie preferred and BOFI...

It looks like BOFI's investment in Fannie preferred is in jeopardy. The company wrote down $1MM of their $10MM in holdings. Some think that the common stock is going to zero but the preferred may be safe because of the large number of banks that hold the GSE's preferred on their books. Unfortunately the market is not making this prediction at the moment. The preferred shares have lost much of their value (I believe a chart of FNA shows that it has dropped from $50 to $10). This issue will be hanging over BOFI (and many other banks) until it is resolved. Fortunately our stellar earnings will most likely cover most losses from this over the next quarter or two if losses come to fruition. The bad news is that short sellers finally have something tangible to stick their pin into...
BOFI quote and info

****UPDATE 9/8/2008 - We now know that the Fannie preferred is just about worthless. Look for an $8MM writedown next quarter. I have sold some shares here to lighten up and will buy back after the smoke clears... Possible good news is that the Mortgage Backed Securities that BOFI holds will most likely appreciate in value because of the Govt. takeover of FNM and FRE.

Earnings BSIC - BOFI - BLD - all in all very nice...

Two out of three of our top micro-cap holdings had record earnings... the third had very nice earnings. BSIC and BOFI both had all time high earnings booked for the most recent quarter. As an oil stock, Basic Earth probably did not surprise too many with record earnings, but BOFI Holding (as a bank stock) should have. BOFI doubled earnings from last year - 10 cents to 20 cents. There was an issue with the fact that they hold some Fannie Mae preferred (which they wrote down 10% or $1,000,000), but all in all, very impressive. They also increased tangible book value to near $9/sh. Basic Earth had great numbers with 8 cents earned (a 381% increase). Annualize that 8 cents and you get a forward PE of about 5 for BSIC. Unfortunately the momentum has come out of oil related sectors and we are being whipsawed by oil fluctuations. Baldwin Tech BLD had a solid quarter with great overseas order flow for printing products. I believe the backlog was $54 million at the end of July.

Both BSIC and BLD had 30% pops when earnings were released. I sold some BLD. BOFI fell towards the end of the day when a heavy seller showing 10,000 to 20,000 at a time on the ask crushed the stock down toward $7/share. I am assuming this is a short seller adding to the larger short interest. The technique today almost seemed like bullying the price. I can not imagine a current shareholder selling would be so belligerent about showing on the ask...


Quote and info - BSIC - BOFI - BLD