Equity Research and Investment Analysis

Public Storage (PSA) stock was one of the biggest losers in the S&P 500 today after suffering a downgrade from Argus to Hold from Buy. Having not seen the Argus report, we cannot comment on their analysis. However, we will have to respectfully disagree with their conclusion. The stock sold off about 1.6 percent on a day that most other stocks saw impressive gains. At Ockham, we believe this downgrade created an opportunity to buy the second largest REIT by capitalization at an attractive valuation.

A recap of some of our bullish/bearish calls on the Razor's Edge blog. While the last month has been a bit less volatile, it is still a very difficult market to make smart valuation decisions in. Nevertheless, the Razor's Edge has had strong success in the last month and our goal will be to continue identifying under and overvalued stocks.

Public Storage was down nearly 20 percent yesterday and we believe that such a drop has uncovered a possible buying opportunity. The company is Undervalued at present and also stands to benefit from increased trading down from the McMansions to the apartment complex.

Genworth has seen significant appreciation well in advance of the fundamentals justifying such gains. Analysts are expecting fiscal 2010 earnings of $1.10 which would make the valuation look attractive, but that seems to expect quite a bit out of Genworth’s other units if the mortgage unit will see its peak losses in that year. As capital markets have healed this year, GNW has raised capital through asset sales, a debt offering, and a secondary offering of stock in order to provide a cushion for any future losses.

There is significantly less risk in this bank than probably any other major bank, and their CEO believes that the conventional wisdom regarding New York City is probably too bearish. With a multiple below 13x and a dividend yield around 4.5%, we firmly believe this investment will start to attract some attention as quality becomes more of a premium.

Cramer talked about enormous upside on this deal with Colonial, as their mortgage unit, which had come under DoJ investigation, posses no liability to BB&T. The offering went on sale Tuesday, and so far in morning trading the stock is up more than 2 percent. Clearly, BB&T is having no trouble raising money in the open market.

Clearly, the relaxation of mark to market has served the purpose of giving banks a breather from book value destroying write-downs. However, as Weil exposed, book value is really simply accounting fiction. Many of the credit issues that caused this mess are still yet to be worked out, and at Ockham we remain very wary of bank stocks.

As today's earnings release demonstrates, credit concerns still necessitate fortification of their balance sheet. We will continue advising investors to steer clear of Deutsche Bank for the time being because the recent economic improvements are still vulnerable and the actions of the company do not inspire a lot of confidence in the immediate future.

There were a couple of very interesting pieces of news from the this morning that I believe are important. One, a study by the WSJ, has shown that banks thus far are lending less than before they received the TARP funding. The second comes from a newsletter from John Mauldin that warns of the possibility of more TARP programs headed our way.