Equity Research and Investment Analysis

Unfortunately for income investors, Weyerhaeuser is far from an anomaly in this market with 55 dividend payers in the S&P 500 lowering their dividend so far this year and ten companies suspending them indefinitely. This move should not come as a surprise for anyone invested in Weyerhaeuser, because it just makes sense that a company loosing money would need to conserve capital wherever possible.

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.