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Sometimes Pure Junk Trades Very Strongly

Almost 3 years ago the small company 1347 Property Insurance (PIH) sold a small issue of preferred stock. The issue carries a 8% coupon and of course is not rated. It is one of the few insurance company issues that is cumulative.

Here is what I wrote in February 2018.

Below you can see the chart of the pricing since about 1.5 – 2 years ago. Honestly for the junk that it is trading has been strong.

Now I will just tell you now that the company is headed for the “trash heap” and holders of the preferred don’t seem to know that while they will receive a few more dividends it is likely they will see very little of their investment in a few more quarters–up in smoke–oh well I hope none of you are holding this issue. If the shares were trading at $5/share maybe it would be a good speculative–but that might be too high.

Now let’s turn to the reality of this issue–more specifically the company itself.

Here is the balance sheet for the quarter ending 9/30/2020. Note that the total assets have fallen by darned near 50% year over year. The cash hoard has fallen by near 50%. Sorry the data is small and hard to read. The SEC document is here.

Now let’s look at the income statement.

As you can see they have a loss of $20 million on the 9 months and a loss of almost $10 million during the most recent quarter.

Back in 2019 they sold a good deal of the business for cash and securities in buying company (FedNat). The buyer writes high risk homeowners policies in Florida and other gulf states–this is wonderful when there are no storms–but with all the storms the company has been hammered hard.

Now I am not going to go further with this–it isn’t worth it. I learned my lesson with the small insurer Atlas Financial where I took a 75% loss of some of their 6.625% baby bonds.

12 thoughts on “Sometimes Pure Junk Trades Very Strongly”

  1. 1347 Property Insurance (NASDAQ:PIH) announces name change to FG Financial, in an effort to reflect the company’s diversified holding company strategy.
    The company commences trading on the Nasdaq under the new ticker symbol “FGF”, effective immediately.
    Further, the Company’s series A preferred shares commences trading today on Nasdaq under the ticker symbol “FGFPP”.

  2. Oy Vey already!!! I won’t look below a 1 billion on market cap for the most part. You guys can make a huge amount moving in and out of thinly traded names. I can’t for a host of reasons….One of which is I need to be able to sell multiple positions in a short time frame. And when something is showing 1 X 1 with a $1 bid ask spread it’s just too much for me to even bother with.

    I had a thinly traded 6% bank that I put on that tested my convictions. Went past 365 days but it just won’t move. When it finally got back to 25 1/2 land there was NO volume. I was sitting with thousands of shares. If I sold 1000 it would have gone below 25 quick. Then it started to move. And finally went over 26. Lo and behold I was fortunate enough to see volume as it moved over 26.5. I dumped almost all in like 26.55 to 26. 75 land. Yes it traded at 27 that day but I wasn’t able to play for pennies. I dumped for dollars. And now it’s back below 26 and down to a few hundred shares a day.

    Know your goal posts before opening a position.

    1. IYP, Certainly understand and respect your position. One thing you may be interested in knowing that at times all isnt as it appears with “1×1”. Level two hides shares all the time. At times what appears to be 100 available at that price can be thousands. Supposedly it is done to not “spook the market” either way, but its more of a scam to me to create false appearance of scarcity from either the buy or sell side.

      1. I hear that. But I’ve also seen where it’s showing size and one trade gets abused. It’s like in microseconds they can decide to pull bids and not honor what I thought was a legit bid. Other times deal gets done and the B/A barely changes at all.

        In general the thin issues can be very lucrative. As long as you have comfort in company and are willing to collect interst waiting for market to come to you.

        And then there’s analyzing balance sheets and income statements. I really should have paid better att in biz school

  3. Good write up Tim and I commend you for your brutal honesty. I decided several years ago now that Iam almost a thousand years old that I will not delve into “any” of these small companies. I’ve reached that point in life like many on this site where Iam extremely comfortable, have plenty of assets, and just don’t need to chase after what I call junky crap. Happy Holidays to you Tim.

    1. Chuck P–I bought a little of Atlas Financial a number of years ago around 25 and it now trades at 5 or 6 (I sold it a while ago). You are wise to stay away, but obviously someone thinks there is something here—sometimes the lessons are expensive.

  4. If it’s losses are based on insurance payouts, shouldn’t at least show some potential liabilities? The balance sheet makes it appear is if it’s just a cash box, but obviously that’s not the case.

    1. Karma–there is a bit more to the story, but they sold off most of operating units–it gets complicated, which I choose not to go into.

      1. Tim, and in this 2020 crazy investing year, if a companies stock 52 week low was this month and not in March when 99% of all stocks reached theirs, that is not a good sign… I played this for a few bucks around the time it IPO’d, but a then “emerging growth company” along with its insuring profile made it a dine and dash trade. I havent even paid any attention to this issue since 2018.

    2. 1347 Property Insurance is a holding company, so ‘cash box’ might be a fairly accurate description.

      1. I made money on $AFHBL buying for $4-5 during Covid and selling in the $8s as a trade.

        I actually do own shares in $PIHPP and it’s a yellow alert holding as of right now. It’s not a stock for widows or orphans.

        Due to the easy money environment, some folks may feel like it’s the twilight zone for junk preferred’ performance and we will have to be comfortable with it until the market changes its mind.

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