Update: IndyMac (IMB)

Last Thursday we talked about IndyMac Bancorp (IMB) as a good opportunity play. The stock had a value of $31.44.

Today IndyMac Bancorp (IMB) closed at 35.09, up by $2.32 or 7.1% on news (that has no direct relation to the company) that iStar Financial Inc. said it would buy the commercial real-estate lending business of Fremont General Corp (FMT) for $1.9 billion in cash. The Fremont stock closed at $10.00, up by $2.89 or 40.65%.

Fremont shares had lost more than 60% of their value earlier this year. At the beginning of 2007, Fremont was one of the largest subprime mortgage lenders, offering home loans to poorer borrowers with bad credit records. But later the crisis in mortgage market hit hard the company hard. In April, it agreed to sell the subprime business to hedge fund Ellington Capital Management. Now Fremont is also selling its other main business - commercial real estate lending - leaving only its retail banking unit.

As we described in our last thursday's posting, the fear about IndyMac's mortgage business is already priced in the stock's value. This not-so-related news is good because it pushed IndyMac's stock value up but today's enthusiasm may fizzle out in next few days.

But we are not taking these short term fluctuations too seriously. We believe in holding it for a longer time for better gain, while enjoying its high dividend yield (currently, 5.70%). If you had bought IMB at last Thursday's closing price, the gain is already 11.60% -- that gives you a good profit in less than a week's time!

Disclosure: We own IndyMac in our personal portfolio. You should do your own research before making any decisions. This blog, or its authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.
Caution: Always purchase stock depending on the risk level you can take. Keep your portfolio diversified and never ever put all or most of your money in one basket. Spread your risk in various kinds of investments: real estate, fixed income, bond, stocks in various sectors. If you feel individual stocks are too risky for you, consider ETFs or mutual funds.

Opportunity in Beaten Down Stock: OVTI

Omnivision Technologies (OVTI) : OmniVision designs, develops and markets high-performance, highly integrated and cost-efficient semiconductor image sensor devices. The Company's main products, image-sensing devices referred to as CameraChip image sensors, capture images electronically and are used in a number of consumer and commercial mass-market products -- most notable among them being camera phone.

Throughout 2003 the company had a nice run mainly because it was riding on the increasing popularity of camera phones at that time. The stock enjoyed a second phase of great run from November, 2005 to May, 2006 with introduction of some security technology products and high performance sensors. After that a series of earning disappoints made the stock to talk with the floor for about a year now. On March 1, the company said its third-quarter profit plummeted 86% due to stock-based compensation expenses. Quarterly revenue fell to $134.4 million from $137.7 million. But, along with those bleak news, the company also sent some positive signal by announcing that its board approved a stock buyback plan of up to $100 million in common shares.

Today the stock closed at $14.49, up 9c. The current P/E ratio is at a reasonable level of 17.25. We feel the stock may start another good run soon. The company recently introduced TrueFocus 3 Megapixel sensors (always on focus -- no autofocus lag) and also autofocus 5 Megapixel sensors for camera phones and other low cost digital wireless security solutions. These products are already in high demand and has good future. That should reflect in the earning reports of the company in next few quarters.

The company is also a possible take-over target. Any new rumor may push the stock up. If you buy this stock, keep a watch on the morning news everyday for any take over rumor so that you do not miss the opportunity of making a good profit. In case no rumor comes up, we believe holding the stock for a time-horizon of about a year would bring nice gain. Omnivision's basket of good technology products that are useful for average consumers as well as big industry houses certainly do not deserve to be overlooked for a long time.

Disclosure: We own Omnivision Technologies (OVTI) in our personal portfolio. You should do your own research before making any decisions. This blog, or its authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.
Caution: Always purchase stock depending on the risk level you can take. Keep your portfolio diversified and never ever put all or most of your money in one basket. Spread your risk in various kinds of investments: real estate, fixed income, bond, stocks in various sectors. If you feel individual stocks are too risky for you, consider ETFs or mutual funds.

Opportunity in Beaten Down Stock: IMB

IndyMac Bankcorp (IMB) : On April 26th, the California mortgage lender IndyMac Bancorp said its first quarter profit fell 34% as mortgage profits took a hit from a shakeout in the subprime lending. IndyMac President Richard Wohl said he expects mortgage-banking revenue to drop at the firm's reverse mortgage unit, Financial Freedom, in the 2nd quarter, after performing well in the first quarter. "We expect net income for Financial Freedom to decline from $28 million in the first quarter of 2007 to roughly $12 million in the second quarter and then likely grow from there."

Still we like this stock for various reasons. The stock is down 34.6% from its all-time high of $48.21 set in May 2006 and has a single-digit PE ratio of only 7.27. We believe the situation regarding subprime or Alt-A lending is not of critical concern and most of the risk is already priced in the stock. The bank has a growing presence in Southern California and over the last few years could establish itself as a readily recognized name -- one reason being relatively high yield of its CD rates. Sooner or later it could also be a take-over target of big banks.

One can get into this stock at this level and hold on to it for big gains to come, while enjoying its high level of dividend (currently 6.34%). It's an intermediate to long term play. We expect it to go the level of $40 within a year's time -- may be sooner. But if we do not start taking a position now, we may miss the bus completely.

The stock closed today's session $31.44 -- up by 0.38 or 1.22% -- possibly aided by the Fed chairman Bernanke's positive comments about the effect of sub-prime lending on US economy. "We do not expect significant spillovers from the subprime market to the rest of the economy or financial system,'' Bernanke said at a conference in Chicago today.

Disclosure: We own IndyMac in our personal portfolio. You should do your own research before making any decisions. This blog or authors are not responsible or liable for any misstatements and/or losses you might sustain from the content provided.
Caution: Always purchase stock depending on the risk level you can take. Keep your portfolio diversified and never ever put all or most of your money in one basket. Spread your risk in various kinds of investments: real estate, fixed income, bond, stocks in various sectors. If you feel individual stocks are too risky for you, consider ETFs or mutual funds.

Commission-Free ETF Trading

Exchange Traded Funds (ETFs) have lower expense ratios, usually around 0.3%, than most mutual funds. Traditional open-end funds charge around 1.5% to 2% on average. But those low ETF expense ratios are offset by commissions on both ends of transactions. Mutual-fund investors aren't typically charged commissions for buying or selling. In the past, ETFs were largely used by big institutional investors because they could absorb the costs of commissions, but now with free trading, ETFs are readily available to smaller investors and for them the cost is becoming an issue to consider.

Last October, Zecco.com became the first U.S. online broker to offer free equity trading and thereafter Bank of America and Wells Fargo also followed the suit. Zecco is offering free trading without any minimum requirements. Bank of America is requiring that investors put at least $25,000 in either a money market or savings account. Any money going into actual investment accounts, however, is not counted towards reaching those minimums. Wells Fargo has also set $25,000 minimum for free equity and ETF trades. But it will allow a portion of mortgages held at the bank and other investment assets to count against that level. Obviously, such schemes have been criticized because investors need to keep a relatively large amount in one of the bank's savings plans instead of a higher-performing investment account just to avail of this offer.
While Wells Fargo is allowing 100 free trades per account a year, Bank of America offers 360 free trades per year. Zecco is allowing up to 480 trades by individuals each year. It also has no minimums for IRAs (Individual Retirement Accounts) or $2,500 or more in assets in brokerage accounts.

Costs eat away a sizable portion of our investment gain (and usually we fail to see that). It needs to be seriously looked into. Hopefully, other financial institutions would also follow the trend of free trade without any tag attached -- that has been started by Zecco.