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King Pharmaceuticals 2Q 2010 Results

Portfolio holding King Pharmaceuticals (KG) reported second quarter results earlier this week. Earnings equaled $371 million compared to $445 million in the second quarter of 2009. The Company reported net income of $18.0 million and diluted earnings per share of $0.07 during the second quarter of 2010, compared to a net income of $37.9 million and diluted earnings per share of $0.15 in the same period of the prior year.

Most of the drop-off was because of a greater-than-expected decrease in sales of Skelaxin -- sales off 95%.

Going forward, I'm looking for positive results generated by new abuse-deterrent pain drugs such as Embeda, Remoxy and Acurox. KG stock plunged earlier this year when the government gave a thumbs-down to one of its abuse-deterrent drugs. The company will be going back to the FDA later this year, early next year, and I'm cautiously optimistic for now.

While I'm waiting I'm comforted by KG's solid balance sheet with cash and equivalents of $573 million and access to a $500 million credit line.

I probably should have reduced my KG position back to a 5% holding last year when the stock enjoyed a big run up. That would have partially locked in a nice gain.

Now the stock is below my original purchase price. And it will take a few quarters for everything to shake out to my satisfaction.

Patience is the word.

EGI Financial Holdings 2Q 2010 Results

EGI Financial trades in Toronto under symbol EFH. The stock is up since I bought it in 2009, but still trades at less than 80% of hard book. There's no dividend, but I still like it being a Canadian company with me being down here in the US.

The company has been battling headwinds recently in its core Ontario market. Market conditions there are improving now, and the company is seeing promising things in Quebec and the Canadian Maritime provinces.

What's more, EGI has started doing business in Texas and will soon being writing coverage in Florida as well.

Execution is the risk here -- as it is in practically every stock I hold. But EGI has good, conservative management and that, along with the discount to book, leaves me feeling comfortable despite any fluctuations in the stock price.

Douglas McIntyre, CEO of EGI, said, "We reported continued growth in our Personal Lines and Niche Products divisions during the second quarter, despite operating in a challenging environment for property and casualty insurance companies. We believe our ongoing volume growth is another strong sign of hardening market conditions in the Ontario automobile insurance market. In the first six months of the year our premium volumes increased by 25% and we expect this trend to continue throughout the remainder of the year. While insurance market conditions have had a negative impact on our business, our underwriting results have improved significantly from the first quarter of 2010."

You can read the release on the latest results here.

Jerry Flint, R.I.P.

Jerry Flint, most known these past years as an auto columnist for Forbes, died this past weekend from a stroke at age 79.

Flint had covered the auto industry since the late 1950s. I've always thought one of the best things about his writing was that even if someone wasn't a "car guy" they'd still enjoy his columns.

Flint was certainly a "car guy" -- and no one lamented Detroit being taken over by finance people more than he did. Or entertainingly dished out stinging copy on the subject.

Controlled Greed hadn't been linking to his columns as much since our misadventure with GM stock. Yet his opinions continued to attract and hold attention.

Steve Forbes wrote a remembrance you can check out here.

Rest in Peace, Mr. Flint.

Portfolio Holdings & Strategy: August 2010

My single largest holding continues to be the SPDR Gold Shares ETF (GLD), which holds gold bullion in London.

I also own four gold mining plays: Newmont Mining (NEM), Goldcorp (GG), Agnico-Eagle Mines (AEM) and the Market Vectors Gold Miners ETF (GDX). GDX is a modified market capitalization-weighted index of publicly traded gold and silver miners. I bought GDX to ensure I’d get proper diversification of major gold miners.

Gold recently corrected and, if I didn’t already have so much exposure to it in my portfolio (roughly one-third of total assets), I’d have seen this as a good entry point (fully realizing it could fall further here). GLD and NEM are up from my purchase prices, with GG, AEM and GDX slightly underwater or about where I bought them earlier this year. All the miners just reported great results, though NEM didn’t meet analyst expectations. Big deal -- the company increased its dividend.

I think the longer trend Bull remains intact, so I’m holding. Normally gold mining stocks overtake the metal itself at the end of gold Bull markets. That hasn’t happened yet -- but I’m confident it will.

In the tech/media/telecom area, I hold the following stocks: Microsoft (MSFT), Geeknet (GKNT), BCE Inc. (BCE), XETA Technologies (XETA) and a small position in Media General (MEG).

MSFT has been trading in the mid-$20s, which is still up from when I bought it for less than $19 a share. I was tempted to add some, but since it is already a full position I’ve decided to hold off. The company recently reported blowout earnings, which confirmed that its strongest product upgrade cycle ever is underway.

BCE just reported excellent earnings exceeding analysts’ expectations, and announced it is increasing its already fat dividend -- paid in Canadian dollars -- by 5%. The company has also been buying back stock.

Geeknet has changed its symbol from LNUX to GKNT. Much more importantly, Kenneth Langone has been named Executive Chairman and interim CEO. Langone stated on the analyst’s call last week that he and his partners own about 30% of the stock. I’m anxious (in a good way) to see what’s in store for Geeknet.

In the property & casualty insurance sector, I own Fairfax Financial (FFH/Toronto), EGI Financial (EFH/Toronto), and NKSJ Group (8630/Tokyo).  Fairfax and EGI are based in Canada and NKSJ Group in Japan. Fairfax is one of my largest holdings in the portfolio, but I’ve sold enough of it to get my original capita out, so it is a free ride. It too just reported excellent results. NKSJ formed out of the NipponKoa merger with Sompo Japan earlier this year.

Unifi Inc. (UFI) just reported good results and has had its first profitable year since 2000. Ken Langone also serves on UFI’s board of directors.

I continue holding King Pharmaceuticals (KG), Capital Southwest (CSWC) and a small position in 3i Group PLC (III/London). CSWC still sells for much less than book value. I expect to hold this stock for years to come. And it is the only stock I own where my broker is instructed to reinvest the dividends (not that the dividend is big, it yields less than 1% last time I checked).

Lastly, I hold Superior Industries International (SUP). I don’t expect much from this until things pick up in the auto sector. Yet management maintains a strong balance sheet and I’m patient with the dividend near 4%.

My cash position is less than 10%.

Levy Harkins 2Q 2010 Letter

Michael Harkins is full of wit and wisdom, which we can see at times on Pimm Fox's Bloomberg show. He's also been mentioned by Jim Grant, and I think has appeared at Grant conferences in the past.

His firm's 2nd quarter letter to shareholders is up on the firm's website. A part:

In America, the Obama government is not helping matters.  The President alternates between language sharply critical of business one day, to outright vitriol the next.  The people who create jobs grow frightened when they are vilified, and so a President venting about a part of the population he’s never liked does none of us any good.  Longing for more jobs and despising the people who create them is a logical absurdity and a common position in the Democratic party.  Republicans offer the policy of “no”, but after that, what?  So far, a doleful silence.

And another:

Uncertainty has made stocks cheap, and that is the best thing you can ever say about an investment.  Indeed, the pessimism bubble has grown so large that last week the New York Times took to disparaging the cash on hand at a number of technology companies, saying maybe their cash should be discounted from their valuation, or even ignored entirely.  Here’s a question for the Timesman, “If you don’t like cash, and the rapid accumulation of more of it, what is it you do like about business?”  What an about-face in ten years time.  A decade ago many and many a technology firm had multibillion dollar market valuations and not a penny to their names.  That ended very badly.  This moment sees companies like EMC and Qualcomm and Google with cash hoards that are a quarter to a third of their stock prices, and growing rapidly.  We will take that any day. Indeed we lust after it.

McElvaine Partners Investment Conference

Tim McElvaine has posed a transcript of a presentation he made at the McElvaine Partners' Investment Conference held last May. (Go here to download.)

As you might expect if you've been reading this blog over the years, I can't recommend reading -- and re-reading -- this presentation enough.

It's 30 pages, and McElvaine talks about his trust's performance, the good and bad, and the way he's approaching the investment landscape these days.

He freely explores investment mistakes as well as successes, and delves into some of his current holdings.

He refers to his days with Peter Cundill, and an interesting side note is that John Templeton had money invested with Cundill.

Anyway, I'm not going to waste your time by paraphrasing the presentation. But if you review it, you'll want to stash a copy in your files -- it's likely to prove worthwhile to go back and look at from time to time as you think about investing.