Monday, April 30, 2007

Exchanges In Play With ISE Bid

I have written that the Nasdaq would go after electronic options exchange ISE (ISE). Today Deutsche Boerse beat the Nasdaq to the prize and made a $2.8 billion bid for the ISE. I continue to believe that you can own just about any public exchange. NYSE Euronext (NYX) just completed their merger and I wouldn't expect them to do a deal anytime soon. ICE & the CME are currently bidding for the CBOT (BOT). If you have some extra dough laying around (roughly $2.4 million) I would look into buying a seat on the CBOE in anticipation of an IPO or a bid from the Nasdaq (NDAQ). In the meantime I continue to remain long ICE and NMX.

ISE: Bid for 31*2008E=$67.50
NDAQ: 31*(1.73E)=$53.63 vs. Current Price $32.56
ICE: 31*(5.10E)=$158 vs. Current Price $127
NMX: 31*(3.76)=$113.77 vs. Current Price $129.71

Monday, April 23, 2007

Ryerson (RYI) Update

Today steel producer Ryerson (NYSE: RYI) jumped 7.3% on a rumor that private equity firm Apollo Management LLP would make a bid between $44 and $46 per share. On April 9th I mentioned Ryerson as a buyout candidate. I recommend taking profits and moving on. If you still want to hold the shares I would sell calls on your position.

Wednesday, April 18, 2007

Discount Brokers Continue to Struggle

TD Ameritrade (AMTD) and Etrade (ETFC) gave disappointing guidance this week. Both will need to make acquisitions to grow earnings. The discount brokers face significant challenges with Wells Fargo, Bank of America, and Zecco offering free equity trades. Etrade has diversified away from stock commissions with banking and futures trading. An acquisition of a derivative focused broker would make the most sense for Etrade or TD Ameritrade.

Three Acquisition Targets

OptionsXpress (OXPS) - Recently expanded futures trading with the purchase of online broker Xpresstrade. OXPS trades at 14x forward earnings. Etrade and TD Ameritrade trade at 11x forward earnings. OXPS has better growth prospects than ETFC and AMTD.

GFI Group (GFIG) is in the sweet spot of the derivative market. GFIG is estimated to grow earnings at 20% per year for the next five years. GFIG provides brokerage services for credit derivatives and energy products. Currently trades at 20X forward earnings.

FCStone (FCSX) - Recent IPO not yet covered by any brokerage house. Provides commodity risk management.

Monday, April 16, 2007

Portfolio Update

2007 YTD Return: 6.08%

Top Holdings

1. Nymex Holdings (NMX)
2. Silver Wheaton (SLW)
3. Cerner (CERN)
4. AllianceBernstein Holding LP (AB)
5. Corrections Corp of America (CXW)

Monday, April 09, 2007

Strengthen With Steel Stocks

Schnitzer Steel (SCHN) reported a monster quarter today. Revenues exceeded estimates by $100 million and eps beat estimates by 31 cents per share.

Key Takeaways from Schnitzer
  • Schnitzer gave a robust outlook for the rest of the year.
  • Nonferrous metals prices were up 30% year over year.
  • "The international markets for scrap metal are expected to be robust."
  • "Average net [steel] prices during the quarter are expected to be approximately 10% higher than the average prices obtained during the recently completed second quarter."

Solid Steel Stocks
  • Tenaris (TS)-Sells steel pipes mainly to the oil & gas industry
  • Arcelor Mittal (MT)-One of the most undervalued-forward P/E of 7, Business Week Cover Story
  • Posco (PKX)-Warren Buffet, Pricing power
  • Ryerson (RYI)-Small-cap domestic steel company ready to be bought out
  • Commercial Metals (CMC)- recycles and markets steel
Note: I am long MT

American Home (AHM) Downgraded

On March 18th I recommended purchasing shares in American Home Mortgage (AHM). The trade was an overreaction to the subprime mess caused by New Century (NEWC), Novastar (NFI), and Accredited Home Lenders (LEND). On Wednesday the 21st I suggested taking profits in case AHM did have some bad news coming. Today American Home Mortgage (AHM) received two downgrades, cut their full year profit outlook, and subsequently cut their dividend. The trade was over when the quick 7% was made in March. Longer term AHM could recover from today's losses. I still see better investment opportunities than AHM.

Note: I have no position in AHM, LEND, NFI, or NEWC

Tuesday, April 03, 2007

Manage Your IRA Like An Institution

Mutual fund expenses and even some ETF expense ratios can greatly impact returns over a long period of time. Very few fund managers deserve a 100 basis point expense ratio. ETFs provide a great way to gain broad market exposure with lower expense ratios than index mutual funds.

If you open an IRA with, there are no minimums, no commissions, and only a $30 annual maintenance fee. Zecco provides a great way to invest for retirement with low expenses. Vanguard ETFs have some of the lowest expense ratios in the industry. Below is a list of some of Vanguard's ETFs that would fit well in any portfolio.

Vanguard ETF Ticker Current Expense Ratio
Vanguard Total Stock Market ETF VTI 0.07%
Vanguard Large-Cap ETF VV 0.07%
Vanguard Extended Market ETF VXF 0.08%
Vanguard Value ETF VTV 0.11%
Vanguard Growth ETF VUG 0.11%
Vanguard Mid-Cap ETF VO 0.13%
Vanguard Small-Cap ETF VB 0.10%
Vanguard Small-Cap Value ETF VBR 0.12%
Vanguard Small-Cap Growth ETF VBK 0.12%
Vanguard REIT ETF VNQ 0.12%