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CUI OMIB and the safety dance +3

19:39 20-May-19


The CFO of CUI Global purchased 5000 shares today on the open market at 90 cents each.  Obviously, the market is not pricing in the potential that he and I see, especially after having waited so long on promises that haven't materialized yet.  I've received a bunch of questions about the recent decline, and I can think of three reasons for it.

First, CUI would be in some trouble sustaining without this deal, as it incorporates financing to keep the company going also.  I think the risk of not proceeding with the transaction is fairly small (high single digit percentage), but sometimes trouble is engineered by financiers. 

Secondly, dilution is always a risk and there is massive dilution associated with this transaction in return for difficult to value assets.  

The last reason is that the market continues to shift toward safety, and CUI is anything but.

Timing of an entry point is typically the most difficult question in investing, and it's tough to guess whether or not this latest in a long list of insider buys will help CUI in the short term.  Regardless, I suspect that now, before further deal details are spelled out, is better than later, but I could easily be wrong.  In such situations, one can always take a partial position in hopes of adjusting as information becomes available, but that doesn't change the extreme GRoDT nature of this stock.

For those who want safety in what could be a long-term down market, bonds are the name of the game.  All of the CenturyLink babies are well above where I called them out, but CTY is still 10% below par, callable at any time, and has another 6.74% annualized payment accruing in a week.  I'd already mentioned last week that CTL was dropping below my range and it is, of course, higher yield at 9.44.  Whether or not it winds up being higher return over the next year or more, while we wait for the company to be ready to participate in ramping sector M&A, depends on how aggressive management is at retiring debt.  Regardless, it is due to announce another dividend any day now.  CTL should not be affected by the Huawei ban or trade wars directly, but a lot of trading is index dominated, and many other telecoms are affected.  Perhaps a better argument is that the balkanization of societies and global communications is a long term negative, but I still the declines are overdone and likely to reverse as we approach the next payment.

Despite the technology coming out of China, I continue to like India better, and election polls are looking favorable for Ebix.  We should know on Thursday.  I'm more interested in a rising rupee than the dividend, but both should be coming soon, followed by Schlumberger's the first week of June.  The weakness is understandable in the long term, oil is expected to follow coal and nuclear down the drain, but that's counter to current market development.

Better yielding than all of these is BGCP, which goes ex-div the same day.  Brexit is a concern, but it's tough to fully explain the stock's decline.  Yields of this magnitude have not held up well in recent months, yet going private or doing a reverse split are the options to be weighed.   Along with MTSI, BGCP seems like the best bang or the buck either way.