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Tuesday, October 24, 2006

Insider Buying At Popular (BPOP) & Selling At Immucor (BLUD)

By Yaser Anwar, CSC of Equity Investment Advisors

Insider BUYING

Popular (BPOP) Date of Trade- October 16th 06 Avg. Price: $18

With a deflating housing bubble causing a reduction in mortgages made & rising interest rates and weakening loan quality, no wonder BPOP is feeling the pinch.

"It continues to be a bad year and we are underperforming," were the comments from BPOP CEO Richard Carrion when earlier this month he announced that 3rd Q net income dipped 29% to $82.2 million. BPOP focuses on serving low income customers who have proved to be exceptionally loyal.

And because deposits represent the cheapest source of funds for a bank, a loyal and stable deposit base is crucial to long-term success. BPOPs credit quality is deteriorating. It charged off 0.77% of total loans in the third quarter, up from 0.69% last year.

BPOP has been on acquisition trail. In November 2005, BPOP acquired E-LOAN, Inc. for $4.25 per share in cash, or approximately $300 million. E-LOAN, Inc. originated over $5 billion in mortgage, home equity and auto loans in 2004. In January 2006, BPOP acquired Kislak Financial Corp. and its subsidiary, Kislak National Bank, a Miami, FL-based commercial bank with $1.0 billion in total assets, for $167.5 million in cash.

The only optimistic sign Francisco Rexach, Director has been accumulating shares in his company. Having spent $191,500 buying 10,000 shares a few months ago, he was back in the market this week snapping up another 3,000 shares at $18 each, a cost to him of $54,000.

Net interest income advanced 0.4%, year to year, in the nine months ended September 30, 2006, reflecting growth in average earning assets, partly offset by a narrower net interest yield of 3.14%, versus 3.32%. The provision for loan losses was up 24%. Noninterest income increased 5.8%, due to a gain on sale of loans of $96.4 million, versus $42.7 million, and greater other income, partly offset by 90% lower net gain on sales and valuation adjustments of investment securities.

While BPOP continues to see increasing problems with its mortgage portfolio and consumer loans, its operating expenses declined $3 million from the second quarter of this year. Although BPOP continues to face challenges with interest rates it is making the right moves by beefing up its loan originations most with variable interest rates so that when short-term rates stabilize a fattened loan portfolio is set to drive accelerated earnings growth.

BPOP has suffered severe damage from the litany of accounting restatements that its Puerto Rican banking competitors announced in 2005.

In October, management noted that the increase in the consumer loans net charge-offs to average loans ratio from September 30, 2005, to September 30, 2006, was associated with higher delinquencies and growth in unsecured consumer loans, primarily personal loans and credit cards.

The increase in that ratio for the lease financing portfolio was the result of higher delinquencies in Puerto Rico and increased charge-offs in the US leasing subsidiary related to a particular customer lending relationship. Mortgage loans net charge-offs as a percentage of average mortgage loans held in portfolio increased in part due to higher delinquency levels experienced in the US mainland.
For now investors should stay away from this company, even with the insider buying


Immucor (BLUD) Date of Trade- October 17th, 06 Avg Price- $26.24

BLUD develops, makes, and sells blood test reagents and automated and semi-automated analysis systems that are used by blood banks, hospitals and clinical laboratories in North America, Europe and Asia.

Back in May, Immucor guided for its fiscal 07 revenues to be in the range of $204 million to $212 million. It appears to be on its way towards this goal of 11%-18% revenue growth over fiscal year 2006, with $51 million in revenues coming in during this most recent quarter.

Recently, BLUD's director John Harris sold 17K shares at $26.24, totalling $446,117. Could it be that the delay in launching the latest version of its Galileo automated blood bank system, now due in the fourth rather than the third quarter, will crimp BLUDs earnings growth? Or perhaps Harris thinks the stock at a forward multiple of 28 is getting a little ahead of itself.

Sales of reagent products using the company's Capture technology were up 16% at $9.2 million; those not using the Capture technology rose 20% to $31.1 million YoY. Instrument sales jumped 57% to $3.3 million. Immucor said that as of as of Aug. 31, it had received 386 purchase orders for its automated blood test instrument know as Galileo.

A new version of the diagnostic machine, called Galileo Echo, is now expected to be launched in the United States and Europe in fourth quarter, the company said. Immucor had previously forecast it would be launched in its fiscal third quarter.

On the positive side, BLUD has a predictable revenue base and will grow earnings per share from $0.56 per share in the past year to $0.69-$0.74 in the upcoming fiscal year.
Either way, investors should proceed with caution, as product delays and mishaps could severely affect the stock price.

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