I added more to my position in Merchant’s Bank (MBVT) today at $26/share.

Took advantage of the overall market selloff in equities.

Dividend yield on Merchant’s at this price is now 4.30%.

My opinions on this company have not changed.

We added more to our position in Merchant’s Bank (MBVT) today as the price dipped below our buy price of $26.85.

Merchant’s Bank is our largest holding by far as we find the price attractive, especially at $26.85/share, which put the PE around 10 and the dividend yield at 4.17%.

As stated in the past, Merchant’s Bank is very stable, risk-adverse with a great history of dividend payments. Even during the recent economic problems, Merchant’s continued to thrive as many of their larger banking peers floundered.

This make for a very reliable income-producing investment, which makes it a great core holding.

This particular purchase will most likely be sold once the price hits $28-$29/share as we already have so much in the stock and would like to still keep diversified, but when the price dips this low it will most likely not stay there very long, which makes for a great trade.

And if the price should stay down, then the worse case scenario is you hold it and make 4.17%.

We bought more shares in Cisco (CSCO) today at 19.429/share.

The Bad News

The selling today is an overreaction to the some negative news reported yesterday regarding their recent earnings report. They had a smaller gross margins (.90% less than expected) and the CEO’s outlook was more negative than expected.  Chambers sited concerns in weaker IT spending by local, state and federal governments as a major concern in the near future.

The Good News

However, the good news is:

1. Revenue and earnings beat estimates.

2. Revenue is still growing.

3. Cisco will be soon starting a dividend (1-2% projected yield)

4. With $40 billion in cash, which easily covers long term debt, the company isn’t going out of business anytime soon and has plenty of money to weather economic downturns and fund continued development.

5. One of the reasons their margins are down is because they are rolling out some new products and it’s typical to have some margin pressure in the beginning of any new production introduction.

6. There will be continued demand for internet/networking services and Cisco dominates the enterprise routing and switching market. The switching costs to other competitors is high giving them a good wide moat for their business. Long term demand oulook looks great as internet usage growth continues.

7. Therefore, I believe most of “Bad News” is already priced in to the stock at the current price.

Buy When Everyone Hates a Stock

When everyone hates a stock can be the best time to buy if the reaction to news is very short term focused and if the company is still strong with good long term prospects and the price is good compared to current earnings, which I believe is the case with Cisco.

However, because of the strong negativity right now, it’s very well possible the price will continue to go lower before recovering.

It may be a good idea to buy in stages if you are concerned about this. This way if you buy a 3rd now and if it goes down more you can buy another 3rd then and if it goes lower still, buy the remaining 3rd.

If it goes up at least you got some when the price was cheap.

I wouldn’t expect the price to go too much lower, possibly retouch the 52 week low of $19/share, but who knows how badly the market will overreact.

In the long run, I’m not very worried on this one.

Sold a portion of our position in Nathan’s (NATH) today.

The stock is trading at the higher end of the trading range and I believe that I can get these shares back later at a better price.  The PE is a little high right now at 26.58.

Would prefer to buy back the shares I sold today at $16.00 per share.

Sold a portion of our eBay (EBAY) position today.

While I feel that eBay is still a very strong business with good potential going forward I think that the current price to earnings to growth is getting high at this point (PEG 1.6).

However, I don’t feel it’s high enough to sell my whole position, as I believe that eBay still has some good growth surprises in store, especially with it’s Paypal business. However, there are uncertainties with the eBay.com business due to the mounting competition from Amazon, Google and traditional stores that will be a continual source of pressure on them.

Therefore, I am keeping my core position, but any future amounts I will want to get a good discount to help reduce the risk. I will need to determine at what price I would like accumulate more shares again.