Permalink | Email this | Linking Blogs | Comments

You read that correctly, Newcastle Investment Corp (NYSE: NCT) a REIT, is currently paying around $2.88 per share dividend, that equates to a yield of 21.9% based on yesterday's closing price of $13.15 according to AOL Money & Finance data. We all know the "truism" that if something sounds to good to be true... it usually is. So why am I crazy enough to even consider such a thing? Believe me, I have been asking myself that question over the last five months or so that I have been watching this stock.

Newcastle first came to my attention through a Smart Money story written by James B. Stewart many months ago. He was discussing three stocks that he thought were worth the risk and had bought into all three. One of them was the now bankrupt American Home Mortgage (AHM) -- need I say more? The second was NCT and the third escapes my memory. Bankruptcy tends to put a damper on my investment psyche, so I left this idea alone until last month when NCT popped up on my radar screen again.

I do not remember what I was reading at the time but I started to take a closer look and found that NCT was very well diversified into all classes of real estate, with only 10% of the portfolio being in residential properties. Looking at some of the traditional metrics: the P/E is around 10, the P/S 1.3, the P/B 0.74 and the PEG ratio is listed at 0.15. All these numbers are SCREAMING VALUE very loudly. So what's the problem?

Although there are many issues associated with REITS and loan portfolios in this market, there are only two primary problems that I can see from an investment perspective, given what I have been able to learn. The first is whether this company will survive this turbulent market. And the second is whether it will be able to maintain the yield.

Before I answer these questions let me share the following information. After plowing through a few traditional reports including S&P's, which is neutral and has not rated the stock, I took the time to listen to most of the November 7, 2007 conference call and these are the highlights:

• Book value is between $15 to $16 per share after the portfolio was "marked to market."
• It expects to receive $1 billion in loan pay-offs in the next 12 months, which will be reinvested.
• If upon the return of capital it is not able to find new suitable deals, it will buy back stock.
• The board has authorized up to $100 million for potential stock buy backs.
• Company management bought stock personally at $27 a share and feels today's price is a bargain. They did not want to comment about whether they were buying more.
• Residential exposure is only about 10% of the portfolio and delinquencies of 60 days or greater are running under 1% and the company has nothing invested in Florida condos.
• Residential loan to value (LTV) in the portfolio is about 80% and impairment is $3 million of the $80 million value.
• Although 2006 loans are troublesome and have been marked to market, the loans from prior years are stable or out-performing.
• Commercial and Corporate debt is 74% of the portfolio in 560 loans and is performing. The commercial sector has not seen any problems.
• It has $30 million cash in the bank.
• The company has a "high degree of confidence" that the dividend will not be cut in the next 12 months

Nothing I am able to find indicates any liquidity problems, loan defaults, management issues or reason to believe this is not a healthy company. Newcastle has maintained a 23% profit margin over the last year and believes we are at the tail end of a tough market. It looks like it will survive just fine. The dividend ramped up as the stock fell. Over the last five years NCT has averaged an 8.8% yield. The 52 week stock price range is $12.15 to $33.59.

As a real estate investor I can tell you that the stock price does not reflect a reduction in cash-flow but a perception that the property or collateral supporting the loans has been marked down. That is what has depressed the stock. This means that as cash is returned and loans are paid back new investments will be based on current property values, possibly prompting the trend to reverse. There is every reason to believe that Newcastle can maintain the dividend, and over the next few years the stock price can return to to its previous highs. A less optimistic view might be that it cuts the dividend in half and the stock takes five to six years to regain its former glory.

Despite the above concerns It still seems that this is a great value. I will be adding NCT to Serious Money: Hot stocks for a cool year -- finding 8 for 2008. Look for the updates to this story as I narrow down the picks to the final eight.

To find potential opportunities and verify my track record, read Chasing Value or Serious Money.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

Permalink | Email this | Linking Blogs | Comments

Permalink | Email this | Linking Blogs | Comments

Is a Recession Nearing?
Most economists say an economic downturn in the U.S. is unlikely, but the stock market looks very worried.
The Street's Recession Fears - BusinessWeek


Mortgage Crisis: Home Loans Are Harder to Get
Wake-up call! If you're ready to buy or refinance a home, the turmoil on Wall Street may be further hurting your chances of getting a loan. Some lenders are shutting down and leaving buyers in the lurch. Interest rates and the terms of loan offers are changing daily. And borrowers with tarnished credit are facing deal-killing loan terms -- if they can find a loan at all.
Mortgage crisis: Home loans are harder to get - USATODAY.com
Also: Lenders More Patient With Borrowers to Avoid More Foreclosures

Retirement Living: Staying Happy as You Age
More people in their 60s and 70s report they're content with their lives than people in their 40s. Here's their key to happiness.
Here are the key ingredients to staying happy as you age - MarketWatch


One-Stop Shopping for Retirement
For baby boomers struggling with questions about how to manage their retirement savings, target-date mutual funds have been a welcome innovation. The category has boomed on the promise of safe diversification wrapped in a single mutual fund. But investors who pursue this one-stop-shopping route need to pick a fund carefully.
Do Target Funds Hit the Mark? - WSJ.com


Protecting Your Child's Identity
Your child's identity is a hot commodity for thieves. Here's how to protect it.
Protecting Your Child's Identity - SmartMoney.com


Inside Story of the World's Richest Man
How did the son of a Mexico City shopkeeper build a staggering $59 billion fortune and replace Bill Gates as the wealthiest person in the world?
Carlos Slim, the richest man in the world - FORTUNE


Millionaires Who Don't Feel Rich
Their lives are rich with opportunity. They are amply cushioned against the anxieties and jolts that worry most people living paycheck to paycheck. But many such accomplished and ambitious members of the digital elite still do not think of themselves as particularly fortunate, in part because they are surrounded by people with more wealth -- often a lot more.
In Silicon Valley, Millionaires Who Don't Feel Rich - New York Times
Also: Making Do, With $10 Million - New York Times
Also: Living Modestly Despite a Nice Nest Egg - New York Times


Which Actors Are Worth the Money?
Hollywood studios routinely shell out $20 million paychecks and serve up rich percentages of a film's revenue to A list stars like Will Smith, Tom Cruise and Johnny Depp on the premise that their famous faces ensure packed movie houses around the world on opening weekend. But are these superstars worth it? As it turns out the movie stars who earn the most bang for the buck aren't the top earners. Matt Damon, the soft-spoken leading man in box office winner The Bourne Ultimatum, turns out to be Hollywood's best investment. For every dollar Damon got paid for his last three roles, his films returned $29 of gross income. And, surprisingly, former Friends star Jennifer Aniston is Hollywood's most profitable actress, despite duds like Rumor Has It. At the very bottom of Forbes' list is Russell Crowe whose standing in Hollywood has shrunk in recent years.
Ultimate Star Payback - Forbes.com

Permalink | Email this | Linking Blogs | Comments

Although short selling -- the practice of selling borrowed shares with the hope of repaying the loan by buying back the shares at a lower price -- goes against the American belief that stocks always go up, I have long been fascinated with it. Short Stories discusses what works, what doesn't, and what some of the leading lights in shorting stocks think about its opportunities and threats. I describe possible short trades and seek your comments and questions for story ideas. I don't offer any investment advice and I don't trade on any of the posts I write.

Last night Bloomberg News reported that American Home Mortgage Investment Corp (NYSE: AHM), which catered to borrowers with good credit, would file for bankruptcy -- possibly August 6th -- a few days after it shut down most of its operations. This week American Home stopped making loans and fired 90% of its 7,000 employees after a surge in borrower defaults prompted investment banks to quit extending credit.

This suggests that NovaStar Financial (NYSE: NFI) which I suggested shorting last December at a split-adjusted price of $116 could soon follow suit. That's because on Friday, according to Reuters, NovaStar -- which specializes in subprime mortgages -- announced to brokers that it would stop funding certain mortgages "temporarily." This is a less extreme version of what American Home did earlier this week.

So despite receiving a $150 million equity infusion last month, NovaStar's bankers may decide not to throw more good money after bad and pull its credit just as American Home's bankers did.

If NovaStar does file for bankruptcy, it will make itself into an object lesson in how to short a stock successfully. The basic lesson is to look for a company that owes more money than it can pay back. In NovaStar's case that looked like a good bet last December.

If an acquirer steps in at Friday's after-hours price of $5.74, then the short position -- though up 1,921% -- will be a bit less valuable than if NovaStar files for bankruptcy.

Update: This morning's Kansas City Star reports that Friedman Billings Ramsey analyst Scott Valentin cut his target price for NovaStar to zero -- it is currently trading at $4.39. So if you covered a short position initiated last December, you could realize a 2,542% return on your investment.

Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in American Home or NovaStar.

Permalink | Email this | Linking Blogs | Comments

The market smarted today with its 280 point drop, but as MarketWatch pointed out, it was only off .7% for the week.

The trouble for a lot of investors is that averages don't mean much if you are in the wrong stock.

Some big name, mega-volume stocks took on water like the RMS Lusitania after it was torpedoed off the Irish coast.

Stocks that provide high-speed internet infrastructure had substantial losses. Charter (NASDAQ: CHTR), the cable firm, has fallen fell from $4.14 to $3.00 this week. Big Band Networks (NASDAQ: BBND) went from $14 to $10. Limelight Networks (NASDAQ: LLNW), another IPO in the industry fell from $17 to $14.50.

Companies in the tech sector that are perceived as already weak took big dives as well. Motorola (NYSE: MOT) was above $17 at the beginning of the week. It dropped to $16.35 today. AMD (NYSE: AMD) went from over $14 to $12.85. Yahoo! (NASDAQ: YHOO) was above $23.60 early in the week. It hit $22.90 today. These stocks are already near their 52-week lows.

In a tough market, those companies viewed as being already in difficult straights often sell-off more than the rest of their industries. It seems that their recoveries appear less certain.

Mortgage companies are not even worth writing about. Some have lost 50% of their value. American Home Mortgage (NYSE:AHM) lost almost all of its. But, the fall-out in financial stocks is far from over.

The market thinks that Bear Stearns (NYSE:BSC) is holding more than its share of weak debt and debt derivatives. If that is true, the stock could be back to its late 2002 low of $54. That means that its value would fall another 50%. Hard to imagine, but entirely possible.

Investors in stocks that are dropping are in a panic now. They have the weekend to read the tea leaves, sweat it out at night, and hope that Asia rallies early Monday.

If the Nikkei and Shanghai Composite signal that the fear has moved around the world.

Well...

Douglas A. McIntyre is a partner at 247wallst.com.

Permalink | Email this | Linking Blogs | Comments

Permalink | Email this | Linking Blogs | Comments

The New York Times [registration required] reports that American Home Mortgage Investment Corp. (NYSE: AHM) is shutting its doors thanks to the fear of its lenders -- who provide the wholesale money they lend to home buyers -- that they won't get their money back. Doug McIntyre posted about this here. Several of AHM's peers -- IndyMac Bancorp (NYSE: IMB) and Accredited Home Lenders Holding (NASDAQ: LEND) -- are also in rough shape.

Last October, I began looking for ways to profit from the collapse in the housing market. My best idea -- posted in December -- was to short shares of NovaStar Financial (NYSE: NFI) which dropped from $116 to $7.19. This post got the attention of a reporter from NPR's MarketPlace who dropped by my office this week to interview me about where the next opportunities for short profits might lie.

My answer is that I don't know. That's because the hedge funds, endowments, pension funds, and insurance companies that buy the mortgage backed securities (MBS) constructed from the loans that NovaStar and its peers originate are not disclosing the value of their MBS holdings. To identify short selling opportunities, I'd like to know this information because many MBS holders will be wiped out.

And if I knew which publicly-traded MBS investors were most exposed to this toxic waste, I could assess opportunities to profit from shorting their shares. One thing is clear to me -- due to the lack of information, there will be many surprises around the globe.

And those surprises will create unanticipated side effects. That's because if, for example, a hedge fund that has invested 20% of its investors' cash in MBSs sees that value wiped out, its investors will clamor to get out of the fund before they are completely wiped out. If it lets these investors pull out their money -- often investors agree to keep their money locked up for years -- the hedge funds will sell their more liquid holdings -- e.g., stocks -- to come up with the cash to satisfy the exiting investors.

These quick bulk sales will drive down prices. And those price declines will make individual investors feel poorer. People who feel poorer are not likely to spend more money unless they can borrow more. And with credit tightening, those individual investors may find it too costly to borrow more money in order to keep consuming.

Maybe this is why so many Americans feel like the economy is -- or soon will be -- in a recession.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Read | Permalink | Email this | Linking Blogs | Comments

Permalink | Email this | Linking Blogs | Comments

American Home Mortgage (NYSE: AHM) fired almost all 7,000 of its employees late yesterday. According to CNN Money, the company will go into bankruptcy immediately.

AHM made $59 billion in loans last year, many of them with adjustable-rates. Many of the company's loans were to the middle part of the housing market and were no sub-prime mortgages.

Another lender, Accredited Home Lenders (NASDAQ: LEND), also showed signs of distress yesterday. After closing at $8.35 on Wednesday, shares fell as low as $3.98 Wednesday.

The mortgage lending fall-out is much likely to get much worse. While many of the problems with sub-prime mortgage problems have now been exposed, loans to more credit-worthy borrowers are likely to fall apart fairly fast.

A large number of adjustable-rate mortgages made in the last year will moved to higher, fixed rates over the next 24 months. Some consumers will not be able to make the larger payments. With home inventory rising and prices falling, they may also find it impossible to sell their homes, unless they want to take a large loss.

The mortgage troubles today may only be the beginning of a much uglier period.

Douglas A. McIntyre is a partner at 24/7 Wall St.com.

Read | Permalink | Email this | Linking Blogs | Comments

Permalink | Email this | Linking Blogs | Comments

In the past five years I have found some fantastic investments, and noted them. American Home Mortgage (NYSE: AHM) is not one of them and it's time to face the facts and take the hit. IT WAS A BAD CALL ON MY PART, even it was not a direct recommendation. There is no getting around it, AHM is in trouble and to say it was my worst call since the bubble burst is not much relief.

I wrote a story in May titled Someone asked about Amercian Home Mortgage, and although I only said this one is worth watching, I was still calling attention to a stock that did not pan out and for that I deserve at least some boos from the crowd. The following was taken from the story:

• The most recent Standard & Poors report from May 2, 2007 rates AHM four stars with a buy rating. Quoting from the report, "While we see AHM's exposure to the ALT-A market affecting near-term earnings, we believe it remains well capitalized and positioned for long term growth." They go on further to state that "...the price is warranted by what we see as it's strong balance sheet." I must point out that this was written about the same time as AHM Shares Fall on Stock Sale when AHM sold common shares to increase it's liquidity and numerous analysts expressed concern about it's financial strength. I am not sure this is accounted for in the S&P report.

While I did raise some questions and each investor should do the same AHM seems to have had even more aspects to question back then, and the same is true today. James B. Stewart of the Wall Street Journal and Smart Money recently wrote a similar story line (including discussion about not catching a falling knife and diversifying) and he actually did a little worse, he had bought in. Given the inevitable litigation I not only wonder now if it can survive, but if it will be driven into bankruptcy not by its sad loan portfolio but by the legal costs to defend itself. AHM closed at $1.48, up for the day, but no consolation given its long slide (from $20 when I posted) and current status.

Those of you who are new to BloggingStoctks can check out my other stories and read Chasing Value or Serious Money to find more potential opportunities and verify my track record as well - INCLUDING ANY BAD CALLS.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.

Read | Permalink | Email this | Linking Blogs | Comments

How Much Will You Pay for Your Daily Latte?
Starting today Starbucks will raise U.S. prices on cappuccinos, lattes and other coffee drinks by about nine cents a cup to help offset soaring costs for milk and other commodities. Starbucks is facing its most challenging time in company history. Its growth is slowing, its stock is down 22% and its competitors are gaining ground. What does the future hold for the java king? Is Starbucks Pushing Prices Too High? l Small coffee shops take on Starbucks as daily prices rise

High Speed Mortgage Payoffs
For borrowers who want to pay off a mortgage faster, there's a plan from the land Down Under that can add a little extra discipline. Home-buyers get a variable-rate, home equity line of credit (HELOC) instead of a fixed-rate loan for their first mortgage. They deposit their paychecks into the account and can draw on it to pay expenses and bills - including the mortgage. Any extra cash above what the borrower takes out is put toward the HELOC.
High speed mortgage payoffs


American Brands Losing Appeal Overseas
New study of top global brands finds Coca-Cola, McDonald's and Nike among U.S. brands that have lost favor with global consumers.
Study finds global consumers less enamored with U.S. brands


Fastest-Growing Brands in Sports
For many teams, increased visibility has meant big business. The Toronto Blue Jays leads baseball with a 127% rise in brand growth over the past three years. The Philadelphia Eagles 113% brand growth leads football, the Cleveland Cavaliers 89% growth leads basketball and the Buffalo Sabres 59% growth leads hockey.
The Fastest-Growing Brands In Sports - Forbes.com


The Next Big Eating Trend: Functional Foods
If you believe the vendors at the annual Institute of Food Technologists convention, you may soon be able to eat and drink your way to better health.
I'll Have the Fish Paste Sushi With the Green Tea Rice - New York Times


13 Emergency Savings Strategies
It's not about deprivation. It's about preparation. Follow these tips to save money without even trying.
Lucky 13 emergency savings strategies - Bankrate


What Your Exterminator Doesn't Want You to Know
When you deal with the pest-control biz, find out if you're the one getting bitten.
10 Things Your Exterminator Won't Tell You - SmartMoney.com

Permalink | Email this | Linking Blogs | Comments

There are times when Wall Street, to borrow a phrase, takes "two steps forward and one step back."

Then there are times when the Street simply stands, and waits for the events on the ground to clarify the financial landscape.

And that was the case Tuesday, as Monday's rally faded into Tuesday's 140-point Dow sell-off. And one reason was the subprime issue in general, which seems to offer a data point daily regarding the sector's health, and its impact on the housing sector, and the economy.

Tuesday's data point was American Home Mortgage (NYSE: AHM), which dropped more than 80% to about $1.00 per share from its recent $10.50 per share after the company indicated it is unable to borrow money under its banks lines and is looking at ways to raise money, including "the orderly liquidation of assets."

AHM characterized the circumstance as a "liquidity issue," and at first glance the event would appear to be limited / restricted to the subprime mortgage segment. However, American Home Mortgage's portfolio contains not only subprime loans, but also near-prime loans, which allow borrowers to obtain mortgages with little documentation of income or assets. Hence, AHM's problems have reignited Wall Street's concerns that the home mortgage default issue may also include home loans to borrowers with average or even above-average credit ratings. If the last point is true, that would suggest a mortgage default problem involving a wider pool of citizens [translation: consumers].

Read | Permalink | Email this | Linking Blogs | Comments

Permalink | Email this | Linking Blogs | Comments

Bear Stearns (NYSE: BSC) probably hoped that it mortgage-backed securities problems were behind it when its bailed out two of its own hedge funds. But no such luck. The company has halted withdrawals from another fund that The Wall Street Journal says has another $850 million in mortgage instrument holdings.

Bear Stearns says it can work its way out of the mess. The investment bank stated that it is not prudent to sell the fund's holdings in this environment.

But, what does that mean. Probably that if the portfolio was sold off there would not be nearly enough money to pay out investors, and Bear Stearns would be stuck with the check.

Over the last six months shares of BSC are down well over 25%, and the market is concerned about whether there is more news that the company has yet to disclose about it mortgage security investments. Along with UBS and JP Morgan (NYSE: JPM), It has loaned American Home Mortgage (NYSE:AHM) money. And that mortgage company is in the midst of a collapse that could cause a liquidation this week.

Bear Stearns could be in worse shape than Wall St. knows now. Its shares could go lower... and lower.

.

Read | Permalink | Email this | Linking Blogs | Comments

"Is the sub-prime mortgage crisis a canary in the coal mine, warning of greater risks to come?" asks global expert Vivian Lewis.

In her Global Investing newsletter, the advisor says, "I think the stock market fall is not the end of the correction. The market has benefited from abnormal excess liquidity lately. Now the spread of caution from the sub-prime mortgage market will hurt the pace of stock buybacks and private equity takeovers."

Adding to these concerns is the latest news surrounding American Home Mortgage Investment (NYSE: AHM) and the REIT's announcement that the dividend would be delayed. Lewis explains, "This will hit REITs, a yield instrument widely used by U.S. investors in search of fixed income." Meanwhile, American Home Mortgage's timing, she notes, is significant for two reasons.

First, says Lewis, "The Long Island managers probably had to arrange for the cash for that day's dividend to reach the financial system on the day it was due. And they couldn't."

Second, as Harry Geisel, a contributing editor to Global Investing, adds, "I suspect that they worked until late hours over the weekend. They must have been trying every which way to find the money, and all their possible hopes failed. That suggests systemic problems with REITs paying out money they did not in fact earn as required under their rules."

A similar scenario could unfold in the closed-end fund arena. In recent years many closed end funds have instituted what observer Tom Herzfeld calls 'lifeboat' provisions to remove the discount.

One common trick is to pay out a set amount of cash every quarter to make holders stick around. Often it is only at the end of the tax year that you learn how much of the supposed dividend in fact was 'return of capital,' which reduces your basis but is not taxed as a dividend.

Based on these concerns, Lewis says, "I suggest selling any leveraged U.S. mortgage or high-yield bond funds. I am not sure what the legal aspects of the American Home Mortgage delay will be. But it will certainly move the Wall Street crisis into worries about more investment vehicles."

She adds, "I'd also note that REITs are used by older investors living on fixed income; by over-50s looking to secure retirement assets; by conservative college savings plans for teenagers not far from their college years; by people parking money they will shortly use for a major purchase like a home. Many of these investors do not watch the stock market closely. Now they will."

Each day, Steven Halpern's TheStockAdvisors.com features the latest investment ideas and market commentary from the financial newsletter community.

Permalink | Email this | Linking Blogs | Comments

MAJOR PAPERS:

• Rupert Murdoch's $5B, $60 a share offer for Dow Jones & Company (NYSE: DJ) appeared to be closer to a final deal as Dow Jones was negotiating with News Corporation (NYSE: NWS) to pay advisory fees for the Bancrofts, the majority stock holders, in exchange for some of the holdout members to back the deal, according to the Wall Street Journal.
• Barron's Online's "Inside Scoop" column reported that so far this year, five top BlackRock Inc (NYSE: BLK) executives grossed more than $82.4M by selling 486.5K shares on the open market at per-share prices ranging from $147.30 to $179.93, according to Thomson Financial data.

• Mortgage woes continued to deepen yesterday, reported the New York Times, which noted that the New York Stock Exchange elected not to allow trading yesterday on the shares of American Home Mortgage Investment Corp (NYSE: AHM), after the company reported that it would suspend its dividend and faced "significant" margin calls from banks.
• The New York Times reported that AT&T Inc (NYSE: T) has made a deal with online music retailer EMusic that will allow people to buy songs from independent labels through their cell phones.
• The Los Angeles Times reported that Toyota Motor Corporation (NYSE: TM) will introduce a new "standard" version of its Prius gas-electric hybrid for the 2008 with a base price of $20,950, 5.5% less than the lowest cost 2007 model.

Permalink | Email this | Linking Blogs | Comments

MOST NOTEWORTHY:

• RBC Capital cut American Home Mortgage (NYSE: AHM) to Sector Perform from Outperform citing the deterioration in the global debt markets for the downgrade.

• Morgan Stanley downgraded shares of Biogen Idec (NASDAQ: BIIB) to Underweight from Equal Weight citing risk to Rituxan growth.

• Merriman downgraded Bebe Stores (NASDAQ: BEBE) to Neutral from Buy as they believe new fall merchandise is not performing well enough to improve sales trends.

• Robert W. Baird downgraded shares of Ingersoll-Rand (NYSE: IR) to Neutral from Outperform citing higher risk premium due to the IRS challenge and tighter credit markets that could impact the Bobcat divestiture.

• Children's Place (NASDAQ: PLCE) was cut to Neutral from Positive at Susquehanna.

• Thomas Weisel downgraded LoopNet (NASDAQ: LOOP) to Market Weight from Overweight.

• ThinkEquity cut Kyphon (NASDAQ: KYPH) to Accumulate from Buy.

• Needham downgraded QLogic (NASDAQ: QLGC) to Hold from Buy.

• JMP Securities downgraded ValueClick (NASDAQ: VCLK) to Market Perform from Outperform.

Permalink | Email this | Linking Blogs | Comments

GlaxoSmithKline (NYSE: GSK) volatility elevated into 7/30 Food & Drug Administration-FDA meeting on Avandia.

• GSK closed at $49.63. A FDA advisory committee meeting on 7/30/07 will review the heart risks of GSK's diabetes drug Avandia.
  
• The New England Journal of Medicine carried a story on 5/21 saying, Avandia "significantly increases" the risk of heart attack.
  
• GSK August option implied volatility of 35 is above its 26-week average of 20 according to Track Data, suggesting larger risk.

American Home Mortgage (NYSE: AHM) volatility elevated into delayed dividend payment.

• AHM invests in mortgage-backed securities and mortgage loans.
  
• AHM announced after the market close on 7/27/07 it will delay payment of its dividend on it common stock to preserve liquidity.
  
• Freidman Billings says: "We are lowering our price target on AHM to $3.00 from $15 to reflect the uncertainty of the unprecedented liquidity events in the overall market and issues specific to AHM's REIT structure."
  
• AHM August implied volatility is at 163; puts are at 198; above its 26-week average of 56 according to Track Data, suggesting larger price risks. AHM puts are priced higher than calls on AHM being difficult to borrow.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

Permalink | Email this | Linking Blogs | Comments