Wednesday, March 14, 2012

MAIN: Investment locavore

Main Street Capital Corp. (MAIN) is a Houston, Texas based investment company that specializes in providing funds to support management buyouts, recapitalization and acquisitions.

The companies in its portfolio are far from being household names. Main Street Capital is the investment equivalent of a locavore, since many of its holdings are in the Houston area.

For me, the big caveat that begins flashing in my jet-lagged brain is that with Main Street Capital, I have no idea what businesses my shares represent except when the company makes its quarterly reports.

When I buy Main Street Capital shares, I'm buying the smarts and cunning of the company's decision makers and its 18 employees.

It's a very personal sort of investment, and the caveat is: I don't know these guys and how good they really are.

MAIN had the most bullish chart of 18 stocks added today to the Zacks top buys list. CELG was the runner up and also had the highest volume on the list. HTH and PEI completed the final four.

The MAIN chart shows almost unrelenting rise from the Nov. 21, 2011 opening at $17.29 up to Tuesday's high of $25.49, and indeed since the recession low of $8.34 in November 2008.

A 47% capital gain over a quarter is always welcome, but MAIN's main attraction is a 6.67% annualized dividend, paid monthly. The stock next goes ex-dividend on March 19.

MAIN's managers know how to turn a profit, with a return on equity of 19%. Long-term debt amounts to  76% of equity, a high level but one that goes with the territory for an investment house.

The price has been bid up to where it takes $10.27 in shares to control a dollar in sales, a high level, without strong support from institutional investors, who own only 21% of shares.

The company does have a small selection of options, with low open interest and high bid/ask spreads. but the attractive dividend and monthly payout make the options irrelevant. MAIN is a shares play pure and simple.

The volume is quite low -- 219,000 on average -- which could present liquidity problems. Even so, the bid/ask spread on shares is only two cents.

Decision for my account: I've bought shares of MAIN. It was a remarkably quick fill for such low volume.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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