Special Situation Investing

Tuesday, November 28, 2006

Apollo (APOL) - Potential Turnaround

I ran into a good stock-pick article containing value/contrarian Jeff Auxier's opinions. In the article, Jeff mentions that he is currently buying Walmart (WMT), Western Union (WU) and Apollo (APOL). Walmart has been coming up in a lot of value discussions ever since Warren Buffet bought into it. Western Union was spun from First Data Corp. and certainly has promise. However, the stock that caught my eye was Apollo.

Apollo runs a number of universities and online education programs for working adults looking to upgrade their education. A former dynamite growth story, it has ran into hard times of late. Enrollment growth has dramatically fallen to ~5% a year, advertising expenditures are far exceeding that level and there have been investigations into stock option grants (who hasn't had these stock option problems lately?) which have resulted in an upper management shakeout. The stock currently trades for roughly half it's 52-week high with a P/E of 14.9.

Jeff's main argument is that Apollo is an industry leader hitting a cyclical downturn. The numbers would generally seem to confirm it's spot in the industry. The company sports profit margins of 17.7% and ROE of 62.97%. There is virtually no long-term debt. Most of it's competitors are also hitting hard times.

The company also may provide certain recession counter-cylicality. In effect, as the economy worsens (if it worsens) jobs become scarcer and people get layed off. Looking for new or better jobs people return to school in greater numbers and companies like Apollo benefit.

At this point I am still investigating the stock. I need to convince myself that the drop in growth rates is actually going to turn around at some point. For those who need fewer reassurances or have more insight into the company this could be a good buying opportunity.

Obviously, I would love to get some feedback on Apollo.

Monday, November 27, 2006

Indus International (IINT) - Arbitrage Situation

Indus International (IINT) has received a prived equity buyout offer of $3.85 per share. The article states that the deal was expected to close in 90 days, that was on October 23. IINT is currently trading between $3.74 & $3.76. If you can get in at $3.74 you would be looking at a 2.9% return (19% annualized) if the deal went through. If the deal falls apart though you're pretty much screwed. The stock was trading at $2.52 prior to the announcement so there is tremendous downside.

I personally don't have the type of funds for such a small arbitrage to be profitable so I will sit this one out. Do your own research before even thinking about this one. Thanks to the vinvesting forum user who pointed it out.

Sunday, November 26, 2006

Sally Beauty Holdings (SBH) - Spinoff Analysis

Sally Beuty Holdings (SBH) was spun-off from Alberto-Culver (ACV) last week. The stock had a great run in it's opening week, rising from an initial $7.35 to $8.65. However, after having a look at the sec filings, I am going to stay clear of this one.

My problem with this one is that SBH has a massive amount of debt to the tune of $1.85 billion. This compares with $2.25 billion in sales and operating income of $192 million at the company last year. I do now know what interest rate SBH will be paying on the debt but in general, junk rated debt goes for ~10%. It is possible that SBH has better interest rate terms but if so probably only by 1 or 2%. What it comes down to is that the interest payments alone will eat up most of the operating profits. After taxes you are not going to be looking at very much booty.

Now there are several ways for a company to deal with large debt-loads. You can pay it off, you can grow and thereby reduce it's relative size or you can simply wait and inflationa will gradually reduce the debt's relative size. Obviously the last item is only an option for governments. SBH is likely planning some combination of the first and second options but it seems that this is going to require considerable time. If my analysis is correct, SBH has very little funds left after paying the debt and so paying off a debt of this size will take a very long time. Start thinking in terms of years. SBH has no choice but to grow their way out of the debt load, hopefully reducing it as they go.

When you look at the company from the perspective of growth you are just not getting that much of a bargain relative to the risks associated with the debt. From 2001 to 2005 SBH grew at an average rate of just over 11%. For the past 9 months, the rate has fallen to ~5%. This represents a fairly average growth rate and as such an average P/E, perhaps in the 14-17 range given the lack of a moat. At current prices, SBH has a market cap of ~$1.53 billion, against net income for the first 9 months of the year (prior to the debt-load coming into the picture) of $108 million excluding special charges. Extrapolating the results out for the full year (past results indicate there is little seasonal effects so I just multiply by 1.33) provides a P/E of ~10.7. So excluding all of the interest payments the company might be worth 30-60% more. Including all of the debt the earnings drop closer to nothing and the P/E is ridiculous.

Let's look at a quick scenario to see just how much growth can improve the situation. If the company can continue to grow revenue and profits at 11% (historically the profit growth has considerably lagged revenue growth so this is questionable) then in 6.5 years time earnings will have doubled. Let's say that the company has reduced the debt from $1.85 billion to $1.5 billion. This assumes they are putting a considerable sum of the growing earnings towards debt repayment. Let's also assume, very optimistically, that the company's debt load is only 8%. Even in this fantasy model, the company would have earnings of $170 million and might warrant a market cap of $3 billion (P/E 17.5). In that case you would have doubled your money after 6.5 years. However, if the company takes out more debt, issues new equity, grows slower than expected, if interest rates spike, if anything goes wrong at all I can't see this turning out well. Where is the margin of safety?

Another item that caught my attention is the external investments that were made into the spinoff. Independant investors contributed $575 million to SBH allowing it to pay out a special dividend. In return they recevied 47.5% of the company. The remaining ownership of the company went to ACV shareholders via the spinoff. At present prices, their $575 million investment has already grown ~26% to ~$725 million. One of the few positive points I might have drawn was these assumedly institutional investors willingness to invest such a large sum. However, the fact that current prices considerably exceed their entry point makes me question the validity of that argument.

To any investors who got in on the ground floor of this one, I salute you. You have made a good and quick profit. However, the debt-load and earnings on this one just don't seem weighted in my favour. Not at these prices. Much as it pains me to do so, I will sit out another spinoff.


I do now own shares in ACV or SBH nor do I plan to buy any.

Do your own research on this and all stocks mentioned on this blog.

Wednesday, November 22, 2006

Guitar Center Inc (GTRC) - Growth at a Reasonable Price

First off, let me say that while this is a stock idea, it is not a special situation by any means.

The Company

Guitar Center Inc (GTRC) is a retailer in the music equipment industry. The company operates 3 different store types (2 tradional and 2 online) which taken together pretty much run the full gamut of different musical equipment. Guitars, drums, band, DJ mixing, lessons, used goods, they got it. Even more critical, many of these products are not heavily retailed by the big box behemoths. GTRC is in somewhat of a niche and fragmented market albeit with a relatively small moat.

The company currently operates 194 'Guitar Center' stores in 40 states, ~90 music and arts locations as well as 2 online retail sites. The company still has room for continued expansion in the US and the international market has not been touched. In addition they can segway into new musical segments, as they did by purchasing the Music & Arts division which is in the band instrument and education segment. Management is forecasting long-term revenue growth of 13-15% and earnings growth of 18-20%. While these number are no doubt optimistic, the company has a history of consistent growth going back to their IPO in 1997. Revenue growth over the last few years was ~17% before slowing to ~12% in the most recent quarter.


As of the third quarter report, GTRC has net tangible assets of $464 M or $15.51 per share against a share price of $43.35. The company recently paid off $100 million in debt, leaving no long-term debt oustanding. However, be warned that the majority of their tangible assets are in the form of inventory. In the rare event of bankruptcy I would not expect the liquidation value to be anywhere near the current tangible book level.

Based on the lower end of their forecasts, net income for the year should run around $2.50+, fully diluted. That is the main sore point for the company and the reason the share price is at $43 instead of it's 52-week high of $57. Earnings were hit by the inclusion of stock-based compensation expenses, increased ad and promptional expenses as well as additional overhead as the company expands into new markets. In general, earnings levels are my biggest concern with the company. Currently they are averaging around 4% of revenue and while this is an improvement over the high 2%'s they were getting in years past it is still quite low. Even bulk-retailer Walmart sports higher net margins at 5.8%. By buying this stock you are effectively betting that as the company continues to grow, the scale effect and cost savings will enable it to expand margins. That is what management is forecasting, as mentioned previously, when they peg earnings growth 6% higher than revenue growth.

While the net earnings are nothing to get excited about, ROE came in at 15.8%. While the company doesn't earn great profits based on it's sales, it does generate large earnings relative to the capital required to do so. What this means is that the company doesn't require a lot of equity to grow and hence going forward shouldn't require taking on debt or issuing new shares.

A Few More Things

The balance sheet was one of the first things which caught my eye on GTRC. The lack of long-term debt says alot about the type of management running the firm. Clearly, with nearly $2 billion in sales they could borrow more and expand faster but they have avoided that urge. This type of disciplined approach is something I look for in companies as it leaves room for future contingencies. My opinion was further strengthened by the reasonable, steady rate that the stock has grown at over the past 9 years.

One of the issues that I had with this stock was 'what is going to happen to it if there's a recession'? Isn't the consumer about to die after all? Well it's certainly possible but the company handled the 2001-2002 recession admirably. In fact looking at the numbers you wouldn't even have been aware that there was a downturn. Have a look at the company's revenue since it's IPO (this type of consistency is somewhat rare and usually deserves a premium price):

2005 - $ 1,782,499
2004 - $ 1,513,172
2003 - $ 1,275,059
2002 - $ 1,100,889
2001 - $ 949,284
2000 - $ 794,786
1999 - $ 620,081
1998 - $ 487,714
1997 - $ 367,353


My primary motivation for purchasing GTRC is that is is reasonably priced, has proven it's ability to grow, is in a niche and seems well managed. The biggest risk, in my opinion, is the company's ability to manage expenses and widen profit margins.

I am not banking on quickly doubling my money or seeing any type of event which will spike the stock higher. Not that those type of events couldn't happen, they certainly could, but this is a longer-term investment based on fundamentals. I simply feel that at current prices, GTRC is a stock which will continue to grow and will beat the market over the next 4-6 years.


I purchased shares in GTRC today at a price of $43.65.

Do your own research on this and all stocks mentioned on this blog.

Tuesday, November 21, 2006

Samsonite (SAMC.OB) Announces Special Dividend

Luggage producer Samsonite (SAMC.OB) made a major announcment today causing the stock price to soar 20% to $1.11. There are a number of elements to the announcement but I feel the following are the most critical:

1) The company, with a current market cap of $252 M intends to issue a special dividend of $175 M. The dividend is contingent on the company's ability to obtain over half a billion dollars in loan financing.

2) The company has sizable preferred shares outstanding and over 90% of the holders have agreed to convert to common equity if the special dividend goes through.

If all preferred shares were converted ~480 M shares would be produced, against a current base of ~230 M shares. Obviously this will heavily dilute the existing share base. There are also sufficient options & warrants to purchase ~85 million shares. All told, full warrant/option/preferred share conversion would result in the share count shooting up to 770 M from 230 M. At this maximum number, existing shareholders would receive $.227 per share or a payout of approx %20.4 at current prices.

On the flip side, the preferred shares convert at $.42 per share. If all 480 M converted, the company would rake in ~$200 M, more than sufficient to cover the dividend. It should also be noted that the preferred shares have $42 M in dividends owing. It is not clear to me whether this value would be erased with conversion.

3) The company is attempting to repurchase ~$300 M in bonds. The repurchase is contingent, again, on it's ability to obtain the half-billion in new loans I referred to in point 1. While they do not explicity make clear the reason for the debt swap I would assume it is in an effort to refinance at a lower rate.

To summarize, this is neither a buy nor a sell idea. I will continue to watch Samsonite but at this point I am just passing on the analysis I have already done. I currently have no intention to buy Samsonite stock and do not currently own any.

Friday, November 17, 2006

Updates: TTWO, WEN, WZEN

Well just thought I would go over some of the more recent events that have affected the stocks I follow. Here goes:

Take Two Interactive (TTWO) - Take Two Interactive has had a hell of a week. It started trading at $16 and was over $18 yesterday. Sony's PS3 is coming out, word is out that ICahn upped his stake to 2.9 million shares from 800k, and investors are just getting pumped on video game companies in general. I already mentioned it before but there latest game Bully is no slouch either. However, at this point I wouldn't buy anymore. I am not going to sell either but those of you who are short-term probably should consider it. TTWO still has some large issues and it could take awhile before sales turn around. In the short-term the stock could head just about anywhere. However, due to tax reasons as well as my fundamental belief that the company can produce quality games and overcome existing legal issues I am going to hold. Just be aware that it is not cheap and that my reasons for holding it are more subjective than purely analytical.

Wendy's (WEN) - Announced that the full 19% of outstanding share for a modified Dutch auction have been tendered. In other words, it looks like the previously announced share repurchase will go through. The company will be scooping them up at $35.75, or towards the top of their target $33-36 range. The market socked WEN on the news, bringing it down over 6%. I consider this a buying opportunity. While I would have preferred a lower average purchase price, I still think the deal is in existing shareholders favour and I will continue to hold my shares.

Webzen (WZEN) - The company got whacked this week. An anlalyst downgraded the stock to neutral and the stock closed down at $3.59. There was also an announcement that there upcoming online game, Soul of the Ultimate Nation, will be provided free with revenue coming from purchases of in-game items or micro-payments. I don't imagine most Wall-Streeter's could get too excited about that. However, this can be a successful model as the upgrades are generally priced quite cheap and players regard extra purchases as insignificant. You can also generate a keeping up with the Jones atmosphere. At this point, I think you have good risk/reward. Now there are a real risks with this one, well with any stock really, that things may not go as planned. However, you're buying for just over book and any reasonably successful game should cause the stock price to soar.

Do your own research on these and all stocks mentioned on this blog.

Tuesday, November 14, 2006

Mueller Water Products Inc. (MWA) - Spinoff

Mueller Water Products (MWA) will be spun off from Walter Industries (WLT) in mid-December of this year. MWA is, as you may have guessed, in the water infrastructure business. Walter Industries will be left with coal, homebuilding and financing divisions.

The situation is a little more complicated than just the spinoff, and has a bit of history. WLT originally acquired MWA in Oct, 2005. Then, WLT IPO'd ~25% of it's MWA shares in June, 2006 at $16 / share. The remaining 75% of the stake will be dished out in the spinoff to WLT shareholders that I referred to previously. It is a just bit more complicated in that there are also some preferred shares which can be converted to WLT shares and receive the spinoff shares. Also, the new shares that will be issued in the spinoff have greater voting power. These new shares will control 96% of the voting power while making up 75% of the equity interest. Shares are currently going for $13 and change. So from a special situations vantage point, at first glance it looks like you have a confusing situation and may have some institutional selling and down pressure on the stock.

I found a quote on the number of shares that will be distributed to WLT shareholders. I believe the range is due to the preferred shares.

Walter Industries holds all of Mueller's nearly 85.9 million Series B shares outstanding, but plans to spin them off to shareholders by the end of year, a company spokesman said Tuesday. For every share of Walter Industries, shareholders will receive between 1.6 and 2 shares of Mueller, he added.

Unfortunately I am not sure convinced that the institutional selling is unwarranted. There are some legitimate issues with the deal. For 1, MWA is heavily tied to the housing market as much of it's business revolves around new construction. I haven't actually crunched the numbers but have seen estimates of ~50% of revenue from new construction. Obviously this should be a bit of a concern as a housing slump seems inevitable. It is more a question of how severe it will be. The company is also tied to government spending to upgrade water infrastructure. As you may imagine, this can lead to very lumpy and unpredictable results. Finally, the existing MWA shares have little voting power. I am not sure how much weighting to give the votes in terms of price but certainly I would rather having voting than non-voting shares.

From a financials perspective things are also mixed. The company has about negative $500 million tangible assets so you don't have much support there. Recent profits have been next to nothing but should improve as the company gets over restructuring and pays it's debt down. Excluding restructuring and other 1-time items the company has operating income of about $275 million against a market cap of $1.56 billion. That in itself would be a sweet ratio to jump in at but the fact is there is additional restructuring and a lot of debt repayment ($1.1 Billion long-term debt outstanding) remaining.

Where I am at with this one is basically nowhere. I have done enough research into it (I feel) that it doesn't look CHEAP at this point. Not that it's expensive, will under-perform or anything like that but it's not outright cheap. I just don't buy stocks unless I think the risk/reward ratio is tilted in my favour or I have some special insight into the situation. Neither condition occurs here.

Another blogger, ControlledGreed, is bullish on MWA. You can view his rationale here. He also has another article with some insightful comments on the situation here.


It has recently come to my attention that not all readers are able to post comments. Apparently, I had a checkbox turned on which limited comment posting to blogger accounts only. At any rate, this issue should now be resolved. I am not sure if anyone was affected by this, but if you were, then believe me, I genuinely am interested in feedback. Post at will.

The one caveat is that the comments get moderated by me. This is just to prevent readers from being subjected to SPAM. I am quite happy with my sexual virility so I just don't need these types of messages. However, beyond completely off-topic SPAM I will put the comments through, regardless of my opinion on them.

Monday, November 13, 2006

Joel Greenblatt's Stock Picks

For those of you new to special situation investing Joel Greenblatt wrote the special situation bible. If you ever get a chance, I highly recommend "You can be a stock market genius" by My. Greenblatt. It has an amazingly bad title but is an absolute gem. In spite of the title, this is not some cheesy, you can make a million dollars with only $1 down and zero-effort book. It is actually quite detailed and clearly points out that this type of investing takes A LOT of work. Slackers will not be rewarded. Joel covers a number of special situation topics in the book: spinoffs, bankruptcies, tracking stocks, etc. and provides a number of detailed case studies for each.

Well anyways, if you have any respect or interest in what Joel Greenblatt is doing, there is an article on some of his recent stock picks here. The article is quite short and doesn't provide any insight into why he might have chosen the stocks, so that is up to us. Of the stocks on his list, I have been watching Claire's & Autozone for awhile but just never pulled the trigger. Anyways, here are his picks:

Autozone (AZO) - Huge turnaround was perfomed on it by Ed Lampert, the guy who is making Sears owners rich. My big problem with this one is that he may have over-emphasized cost-cutting to the point where the store's reputation is starting to suffer. Also, you have already seen substantial appreciation here.

Aeropostale (ARO) - I don't know anything about this one.

Claire's (CLE) - Good turnaround candidate. The stock sells for around 16x trailing earnings and is still growing. Maybe I'll write an article on it 1 of these days.

Friday, November 10, 2006

Services Acquisition Corp (SVI)

A reader, Adam Chud, brought to my attention Services Acquistion Corp (SVI). While the situation isn't really for me, it does have potential so I thought I would pass it on.

SVI is a "blank check company", formed and financed with the sole intention of making a promising acquisition. The company has had it's sights set on smoothie-maker Jamba Juice since March. This is essentially a buyout labeled as a merger. SVI will take control of Jamba for $265 M in cash.

To obtain the cash they have a PIPE agreement with a number of hedge funds (including Soros Strategic Partners) and other investment firms whereby 30 odd million shares will be issued for $7.50 a pop. This was negotiated back in Spring of this year. On top of this, there are a number of outstanding warrants which will cause further dilution at $6 per share. All told, if all warrants are exercised, after the deal goes through you will have ~66 M shares outstanding, and ~$200 M cash remaining with no substantial liabilities. SVI, is currently trading for around $10.90/share, so this will give you a market cap of $720 million, offset by the $200 million in cash

In the year ending, June 2006, Jamba had $253 million in revenue, $6.7 M operating income, $3 M net income. Revenue has been growing at roughly 20% / year over the last 4 years. So at current prices you are paying close to 3x revenue for a 20% grower but with little earnings.

This is where I get stumped on it. 3x revenue is not bad, especially if management can turn earnings around which seems likely. SVI management has previous experience with Blockbuster and seems capable. However, at current prices there just doesn't seem to be the fat discount I like to see. To see a significant pop you are going to have to have a continuation of the 20% rev. growth and a turn-around in earnings. On the flip-side you have a long-ways down should the deal fall-through or the company turn out to be a dud. However, do your own research, if Jamba reallly is a killer franchise this would be a great opportunity to get in at a reasonable price.

Motley fool has a great and free article on SVI here.

You can get some good info on Jamba and the details of the deal from SEC filings here.

Thursday, November 09, 2006

Public Service Announcement

In general, I try to stay away from macro-issues on this blog. I find that there are too many factors that affect the big picture to be able to make any sort of meaningful comment. However, I ran across an article today on the trade deficit and I can't resist commenting. The title of the article is "Trade Deficit Narrows to $64.3B in Sept.".

If I was writing the article, I would have named it "Trade Deficit Continues at Unmaintainable Levels". I think that any wording which puts a positive spin on the trade deficit is misleading and can only lead to harm.
The only reason the deficit even dropped was due to the decrease in oil prices. The fact remains that the trade deficit is running at a level of approximately $2500 per American per year. Children, elders, everyone included. Nobody seems to be doing anything about it. Writing this blog is the 1 thing that I can do.

For those who don't follow him, even Warren Buffet is alarmed by the trade deficit, and is hedging his bets by investing in foreign securities. Warren Buffet is the second richest man in America (if not the world) and is probably the greatest investor ever. Have a look at his 40-year record if you don't believe me.

Tuesday, November 07, 2006

HanesBrands Inc. (HBI) - A Further Review

Apparel manufacturer HanesBrand (HBI) released earnings last week, AP writeup here. I have been watching the company from the sidelines since Sara Lee announced that they will be spinning it off. I did a bit of analysis on the company as part of my never-ending quest for a reasonably priced investment. Here is a summary of some of the key points:

Earnings came in at .52 / share, down from .86 / share in the year prior. Earnings in the most recent quarter were impacted by the spinoff from Sara Lee & restructuring charges. Excluding the charges and factoring in taxes, I estimate that earnings would have been closer to .72/.73 per share. Restructuring charges are expected to be $250 million over the next 3 years.

Revenue decreased by approximately 2%. The company attributes this to the exiting of low-margin businesses and reduced sales of sheer hosiery.

The company now has a huge debt obligation of 2.5 billion against a market cap of 2.16 billion. If you exclude goodwill & intangibles the company has negative book value. The loan was only serviced for 3.5 weeks of the last quarter due to the timing of the spinoff. Going forward, of course, the loan will have to be serviced for all of the quarter. Annual debt payments are going to run ~$260 million, or ~$65 million per quarter.

The company is forecasting sales next year of ~$4.5 billion and operating margins of 9.5%. This should result in operating income of ~$425 million. The debt financing would reduce that to ~$165 million. Assuming restructuring charges are split evenly (they won't be but it will average out over the full 3 years) and that the company forecast them correctly, income would be further reduced to $80 million. Taxes will cut that down to about $55 million.

Another way of looking at it is just to ignore the restructuring costs. This would give you net income of ~$110 million. Against a market cap of $2.1 Billion, this still isn't that attractive.

The one bright spot, is that Hanes Brand is still not attracting much analyst coverage. From the article:

Due to its new independence after the spinoff, Hanesbrands is only followed by one analyst, so no accurate Wall Street estimates are available. Credit Suisse initiated coverage of the company Sept. 6 with an initial rating of "outperform."

My final conclusion? HBI is a well-run company with decent products. They should certainly be able to handle their debt payments and even slowly trim it down. However, for the foreseeable future, it is not particularly cheap. Relative to the valuations on many other stocks it seems more reasonable, so if I just had to put money into the market I would probably put a little into HBI. However, fact is, I don't have to buy anything if I don't want to. For now I will remain on the sidelines.

I wrote another article on the Hanes Brand spinoff, here.


I have no position in Hanes Brand or Sara Lee.

Monday, November 06, 2006

Duke Energy (DUK) to Spinoff Natural Gas Business

Duke Energy (DUK) has announced it will be spinning off it's natural gas business. The new company is expected to be separated on Jan 1,2007, will be named Spectra Energy and should trade under the symbol, SE. Duke will be left with it's electrical utilities.

From the article:

Once the separation is complete, Spectra Energy, which will be based in Houston, will consist of the business unit now known as Duke Energy Gas Transmission and Duke Energy's (NYSE: DUK - News) 50 percent ownership interest in Duke Energy Field Services, which recently announced its new name -- DCP Midstream.


Spectra Energy will operate primarily in three sectors of the natural gas industry: Transmission and storage, distribution, and gathering and processing.

Comments or opinions on the spinoff are welcome.

Friday, November 03, 2006

BancInsurance Corporation (BCIS) - Quarterly Results

BancInsurance Corp (BCIS) is a micro-cap specialty insurance company. I originally wrote a fairly bullish post on them here. The company released their quarterly results a few days ago and I still find the company to be under-valued.

The company actually came out with strong earnings numbers of $.42 / share against a $6.10 share price. This, however, is mostly attributable to the sale of a division. Without this one-time item earnings would have been approximately null. The combined ratio came in at 100.9%, ouch. Finally, premiums earned declined from $13.7 M to $12.4 M. That, in a nutshell, is the bad news. Let's move on.

First, while the combined ratio at over 100% is unmaintable, this included results from their bond operations, which have been discontinued. This is not altogether unexpected and the company has been working to exit out of this business. Without this division, the combined ratio would have been closer to 95%, not great, but maintainable.

The decline in premiums was mostly attributable to a large account which was lost. There is going to be some lumpiness in this business and a single quarterly does not necessarily reflect a trend.

Another discontinued business arbitration was resolved in the quarter. This leaves only 1, from the original 4, and should minimize the losses going forward. This in turn should cause the combined ratio to return to a more reasonable, and profitable level.

Finally, tangible book value came in at $35 million. This in comparison to a market cap of $30 million is enough to hold me in. While I certainly wouldn't commit a large percentage of your portfolio, I will continue to hold my stake. You are at a point with this company where any optimism could push the stock sharply higher while the book value should buttress any negative surprises.

Thursday, November 02, 2006

Take Two Interactive's (TTWO) Latest Release is Selling

Take Two Interactive (TTWO), a company which I was really bullish on a while ago, and still am to a lesser extent, recently released a new video game, Bully. From what I hear the game is violent, and to some, offensive. While there was talk about banning the game somewhere in California, people seem to be ignoring this debate and just buying the thing. In a recent report by UBS, the game ranked as the third best-selling video game last week. This was an increase from 7th spot the week prior.

FYI ... Newer results will be coming out tomorrow.