RMBS Sell All @ $22.33

Decided to take my gains here…maybe I will buy back in under $20 for another trading opportunity

AAPL Stop out @ $192.78

This one was just terrible…end of story…maybe in a different tape this one could have worked out but this market was not having any of it. Just look at AMZN dropping like a fly a day after crushing earnings. AAPL just bled me….I might touch this one again under $180

AAPL Purchase @ $208

Following the release of Apple’s new iPad I decided to pick up some shares. They priced it at an amazingly $499 (most thought that this would be around a $1000). This is really big news and I think this thing is going to be a blockbuster product just like the iPod, iPhone, and pretty much everything else they have done lately. I think AAPL could easily be trading at over $230 after this announcement. The only question is if this weak market will bring AAPL down with it. I imagine if this thing were to fall well under $200 I would probably double my position.

BAC Partial Sale @ $15.01

Due to the enormous run up in its price since purchase, this one just became too big. Sitting at roughly 17% of our total portfolio value, we were extremely susceptiable to any price movements in BAC. While I like the long term potential for this one, I think we will experience some short term downward pressure. I decided to take a little of the table and trim the position to a more favorable 12% position. This will help diversification and protect us from any huge fluctuations in share price.

ASPS Has great Potential but Is this Growth Sustainable?

After spending some time looking at ASPS, I must admit that it does look attractive. The business model sounds good enough from a conceptual standpoint: It is a company that gains from foreclosures and other mortgage related processes regarding asset recoveries, loan collections, refinancing, and several other services. In a nutshell, ASPS should gain on a number of favorable trends that will likely continue into the next few years. Mainly, ASPS should gain from a rising number of foreclosures that I believe will continue. I think there is a strong case for this statement. Many people (including the CEO’s of Trulia and RealtyTrac) believe that the number of foreclosures is going to continue to rise in 2010, 2011 and further. The reason for this is pretty obvious. Most of the rebound in the housing markets is a result of tax credits and stimulus that has driven sales. The underlying issue of people being able to afford their mortgage payments is still a great concern, especially with unemployment continuing to be in the double digits. To add to this, many experts believe that mortgage rates will continue to rise as banks continue to hold back inventory, forcing more people out of their homes. RealtyTrac Senior VP Rick Sharga says, “unemployment, negative equity, and credit availability are the driving factors behind foreclosures,” and in my opinion, these are not going to change dramatically in the near future. He continues on this point, “Negative equity on its own is not necessarily enough to drive foreclosure activity, but with a second trigger, such as a loss of income, divorce, medical bills, or a loan resetting at an unaffordable level, that negative equity greases the skids for more foreclosures.” I tend to agree with him on this point thus I think there is a solid case for a company like ASPS to continue to grow earnings. There are also some other factors that can lead to this growth. ASPS also conducts loan and mortgage modifications. In my opinion, this is kind of a double edged sword for ASPS. Not only do they generate actual revenues from the process of conducting a loan modification, sadly, these loan modifications can actually increase future foreclosures. According to THIS REPORT, in October 72% of loan modifications increased the unpaid balance of the loans for home owners, as explained below:

“In other words, the modification process usually allows lenders to tack onto the principal previously missed mortgage payments, as well as other fees incurred during the modification. The borrower may get to pay smaller payments each month, but those payments may be stretched out over a longer period, amounting to a bigger total balance owed in the end.

Unfortunately, given current house prices, increasing the unpaid balance of the loan also increases the likelihood that the borrower is underwater — meaning that the homeowner owes more than the property is actually worth.”

The question that comes to my mind is whether or not this growth can be sustainable of the long term. Obviously the near future seems bright, but what about the long term potential?  While foreclosures is just a chunk of ASPS’s revenues, it is the main reason for the extended growth we have been seeing over the past year. The next question is, whether or not this growth in foreclosures is already priced in today, which is very arguable. ASPS trades at 6 times premium to book, but only 11 times forward earnings (although that is somewhat comparable to other companies operating in the same industry). These questions are hard to answer, mainly because they involve some speculation of the future, but also because they are a very new company, having just spun off from OCWEN (who account for roughly 50% of ASPS’s revenues) this year. Another positive for ASPS is that they are currently (though this should arguably be the case for any new company) experiencing margin expansions, growing their gross margins by over 7% throughout the year. The company really does have some nice cash generations as well, growing their cash from $5 million to over $24 million in under a year. This coupled with their virtually debt free financial structure makes them even more attractive.

Overall, I think that ASPS would be a good buy here. I think that even with the market correcting a bit, ASPS will be much more resilient vs other companies because of their ability to capitalize on a weak housing market. While it is very believable that the future rise in foreclosures could already be priced in, ASPS is not very well known. This company could really gain some more interest from larger buyers once/if the foreclosures begin to rise again this year. I could easily see this one trading into the high $20’s. Of course it might be wise to buy in small chunks while the market is seemingly on a downward swing at the moment. This could help protect us from paying too high for the stock. I would look at $21- $22 as solid entry points for this one.

GDXJ Purchase @ $24.12

I decided to take a little nibble at gold going into the weekend. This could potentially of been stupid as gold is on a pretty hefty pullback here. I think the speculation over whether or not Ben Bernanke is re-appointed should help gold out over the weekend and potentially move it much higher if a new chairman is to be appointed. This could signal that the US economy is still very weak, thus send the dollar lower and gold higher. I may have rushed this one a bit which is why I took a smaller position. I think GDXJ is pretty attractive at this level (lower than its IPO price). GDX, (which is like GDXJ but it is gold miners not gold junior miners), is trading at a little below its 200 day moving average and well below its 50 day (the reason I say GDX is because it has been trading much longer. GDXJ is only a few months old so its data is not that relevant).   I will look to trade this one as I did GDX awhile back.

ARNA Purchase @ $3.35

I purchased a small position in Arena today. I watched this one for awhile now and think there is some solid potential here. Their obesity drug seems to be the best of the pending drugs that are out there. It has no side effects while all of the other ones do. Many believe that the market for obesity drugs is somewhere in the billions of dollars. This would mean that the possibility for ARNA to trade much higher from here is good. Obviously there are two things that matter with this stock. The primary is the FDA approval of the drug later this year…we are talking make or break this baby. Secondary things are a possible partnership with a larger company to bring the drug to the market (there have been talks of JNJ and ARNA teaming up) and the other is a potential buyout from a larger pharmaceutical company. Both are very possible. This is a speculative purchase and gives me some exposure to the biopharm industry which I have not previously had. This will most likely be a long term hold.

RMBS Sale 1/2 of Our Position @ $23.55

The more and more I look at this settlement deal, the more one-sided it appears to be. Samsung got one hell of a deal….I mean a really freakin good deal, especially when considering what they were on the hook for. If RMBS shares are able to rise significantly in the future it is likely that Samsung’s investment would pay for nearly the whole settlement. What I can’t figure out is why on earth RMBS would accept this deal. If the evidence was as strong as it appeared to be against the cartel then why on earth did they settle more such a messly deal with the biggest of the defendants? Some time today the ITC will release their ruling on the patent infringement case. This will have enormous implications on the reamining AT case. My gut feeling is that this is not going to be a favorable ruling for RMBS (maybe this is why they settled for beans with Samsung a few days before this ruling…just a theory…just a theory). Bottom line…I am not as comfortable with this position at 15% of the portfolio. I decided to book half and leave half on just as a speculative investment. This way if I am wrong I still get the upside and if I am right in my feelings I feel smart but still loose some money but not as much…kind of a win win…So hold on tight for this one cause what ever happens today will likely pop or drop this thing by 5+ points

RMBS Update

So it looks like Judge Kramer granted the request to delay the trial until March 22 or sooner (not sure what the sooner part means). This guy really seems like he does not have a good handle on this case which makes me nervous. After repeatendly confiming that this trial would start on schedule (umm the schedule was Jan 11) he comes out today saying that he does not have a good handle of this case and needs some time to go over everything (mind you this trial was orginially suppose to begin in September of 2009).

I am currently in a predicament. While this news was more expected than anything else, tomorrows ITC ruling will likely move this stock 5+ points or more in either direction. I am not too confident of Judge Essex as he has already ruled in favor of NVDA on several patents, however RMBS only needs one to be deemed infriged upon to win this ruling. RMBS has teh backing of the ITC which is usually a good sign but in the end this one is a crap shoot. I will have my finger on the sell button but it is likely that I will be taking a 5 point loss no matter how fast I am if the ruling comes out unfavorable for RMBS

Big Day!

RMBS Settles AT case with Samsung

Yesterday afternoon, Rambus settled all of its AT issues with Samsung. The deal which called for $200 million in cash + $25 million a quarter for 5 years +$200 million invested in Rambus stock, and a MOU to work together on future product licenses. According to most people familiar with the situation (including me), the deal was a lot less favorable than anticipated, with the high estimates around $4 billion dollars. The AT issues regarding the other two defendants: Micron and Hynix will continue as scheduled, however it is likely that any settlement with these companies will not be nearly as large as the Samsung settlement thus the total settlement (if made) would still be under what many were hoping for. The deal now shifts the investment view for being a shareholder in RMBS. While we initially invested in the company because of the high probability that this legal settlement would occur, now it is about the actual operations moving forward. Will they sell more licenses? Will their products be adopted by the tech industry? Will they finally earn a profit (less settlement funds)? These are all questions that are now being asked whereas before it was all about the legal prospects of their cases. Rambus still has very important ongoing trials that should provide some catalysts for the stock but none as big as this. The stock is trading just over 9% today….very disappointing for what we were anticipating. I guess I will just continue to feel this one out till rulings are made on Thursday regarding the AT issues with the other two defendants. It is likely that this settlement will now open the door to more settlements with the other defendants thus I think I will plan to hold on for now.

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By Susan Decker and Ian King

Jan. 19 (Bloomberg) — Samsung Electronics Co., the world’s second-largest chipmaker, agreed to pay $900 million to end all legal claims with Rambus Inc. and reach a new licensing deal over computer-memory technology. Samsung will invest $200 million in Rambus stock, make an additional payment of $200 million and then pay $25 million a quarter for the next five years, the companies said in a joint statement. The agreement ends litigation that began in 2005 after efforts to renew an expired license failed. Samsung, based in Suwon, South Korea, is the world’s largest maker of computer- memory chips. The agreement may prompt other chipmakers to end their disputes with Rambus and begin paying royalties, said Jeff Schreiner, an analyst at San Diego-based Capstone Investments. “Any agreement with Samsung is a good agreement because it’s going to force other companies to sign,” Schreiner said in a telephone interview. “We are looking at this as a very positive development.” Rambus, based in Los Altos, California, jumped $2.96, or 14 percent, in extended trading to $24.09 following the announcement. It rose 36 cents to $21.13 in Nasdaq Stock Market trading. “We have a tremendous opportunity to renew a partnership which has created solutions that have benefited consumers worldwide,” Rambus Chief Executive Harold Hughes said in the statement. Collaboration Reviewed The companies will focus on graphics and mobile memory and review a possible collaboration on server and high-speed Nand flash memories, according to the statement. Nand is a type of semiconductor used to store files in portable devices such as Apple Inc.’s iPhone and iPod. The accord “is a comprehensive license agreement that covers all of Samsung’s technology, including the interface,” said Chris Goodhart, a Samsung spokesman. The $25 million payments from Samsung would almost double Rambus’s quarterly revenue. Rambus, which had a market value of $2.2 billion based on today’s closing share price, reported $27.9 million in third-quarter sales. Rambus has been embroiled in patent litigation for a decade with companies that refused to license its patents. Rambus has claimed in an antitrust case that Samsung, Micron Technology Inc. and Hynix Semiconductor Inc. plotted to artificially inflate the price of Rambus computer-memory chips to drive its technology out of the market.

Micron Sees No Impact

“We do not anticipate this settlement will have any impact on our ongoing litigation with Rambus,” Micron spokesman Dan Francisco said in an e-mailed statement. “Micron has always been committed to providing our customers with memory solutions that optimize cost and performance.” A hearing on that case is scheduled for Jan. 21 in San Francisco. The case relates to dynamic random access memory chips, which are the main memory in computers. Samsung’s settlement won’t affect Hynix’s litigation with Rambus, Park Seong Ae, a spokeswoman for the Ichon, South Korea- based company, said by telephone. Rambus also has accused Nvidia Corp. of infringing patents related to computer-graphics chips in a case pending before the U.S. International Trade Commission in Washington. An ITC judge is scheduled to release his findings in the case on Jan. 22. Intel Corp. is the world’s biggest chipmaker