Update to my Portfolio

It was a very interesting week. I have made few buys and some sells, here are the highlights:

What I bought on Wednesday during the market decline:

• I added more of Brookfield Properties (BPO) at $17.50. I think BPO has unique assets in high barriers to entry markets. I ignored the noise of higher vacancy rates due to the turmoil on the financial markets and expected layoffs from banks. The company has good management and I think buying it at this time for the long term is worth of the risks.
• I added to the FirstService position. FirstService is commercial real estate service company that is trading now at less than the valuation one division of their holdings, which is residential property management. The company is mistook as a brokerage business and it is being punished because commercial real estate transaction are almost vanished. Sure its brokerage business will suffer but the residential business is solid. The company is being opportunistic and buying other businesses at the moment to position its business for the rebound. Its management is good and they are aligned with shareholders as they have an economic interest of about 25% of the company.
• I have added to Haliburton option position. I am under water on the position but I think HAL has room to run here and very attractive on a valuation basis.
  

What I sold in today's rally

• I sold US Bank corp into today's rally. I bought USB at $30 few months ago and it reached my valuation target I sold at $38, a return of 26% plus dividends received through the holding period. USB is very fine bank it avoided all the nonsense that is plaguing most banks today. It actually closed at 52 week high today. I think the bank is very solid with good management and focused on its core business with no ambition for empire building. But I got to get out right now on valuation basis.
• I sold United Rentals @ $17.45. I have lost on this position as I bought it at $21. I have entered into this trade to take advantage of a tender offer the company initiated but it did not work as I intended.
  
• Sold small position from my fixed income as yields have came down significantly during the panic. Prices of government bonds have went through the roof lately I am selling into that panic.

I still have a lot of cash I need to deploy but I am not in hurry. I have my shopping list and I will wait for attractive valuation, as I think we will visit some of the lows we have witnessed in the past.

Banks' Earnings

Banks have been reporting earnings this quarter and they have been terrible, yet their stocks are rallying.

Today Citi reported a huge $6 billion loss, give or take few billions who is counting at this point, and the stock is up 6% or so last time I checked. J.P. Morgan earnings slumped and the market rallied, yet JP Morgan is quietly raising money, although it is one of the better capitalized banks, so its situation is not as strong as everyone believe.

The view is that the huge writedowns are coming to an end and the biggest losses are behind them. I am fine with that point view, but investors tend to underestimate the unpredictability of the consumer lending business losses that banks have yet to absorb. Loss provisions could continue rising in the coming months as the effects of the US slowdown are felt. In prior recessionary periods, credit problems typically followed as a result of the weakening economy.

Another risk is where the earning going to come from going forward?

With housing market on the rocks, the employment situation is shaky and real earnings are being eroded by high inflation, how banks are going to lend or earn fees from the strapped consumers. More importantly banks like Citi have a weakened franchise that can not go after market share.

I have bought USB and BofA recently and I still like them as a business. My picks are for the heavy presence of BofA and USB in their states and the strong market share that can be leveraged to gain additional business from all their weak competitors. I think BofA and USB will grow earnings as a result of gaining business from others rather than nominal growth.

I will not add to my positions or look for another opprtunity in banks, as I think better returns can be had elsewhere.

New Purchase: US Bancorp

I have made another bank purchase today. I bought US Bankcorp. I think it is a solid company with good management that will face slowing earnings but the value is undeniable.

Banks in general have come under a lot of pressure, some deserved to get annihilated others got taken along for the ride. I think USB is one of the bank that was taken along for the ride. I will post a write up on the bank in the near future.