I've compiled a short list of reasons why Conseco (CNO) is a good investment. For starters, the cash balance in the last 2 months has doubled:
- Available holding and non-life company liquidity of $59 million at 12/31/08
- $108 million of liquidity at 2/27/09
First, allow me to introduce myself. I don’t believe in the efficient market hypothesis. By that, I mean that I believe that companies that make more money and are set to make more money than other companies should come with higher price tags than those other companies. Unfortunately, capital markets don’t always reflect this belief and I plan to capitalize on select opportunities. The goal is to maximize upside potential and at the same time minimize downside risk. That’s precisely what Conseco’s been doing in my opinion by spinning off Senior Health.
JK was the last person to talk about Conseco. I shot him a couple e-mails. He was more optimistic than the article suggested. I would like to quote a short part of the article that summarizes my feelings on Conseco.
Conseco has reported better numbers in the past, said Binner, the Friedman Billings analyst. But they were pumped up due to problems that have been uncovered since the 2006 arrival of CEO Jim Prieur and Chief Financial Officer Ed Bonach.
“Jim and Ed have created a better-functioning Conseco than ever really existed,” Binner said. “They are real, and they’re really fixing the company. But the economic backdrop is just so terrible right now.”
I came across Conseco through my friend Pat Davenport. He thinks that man is presently fear based, and that expecting rationality across the whole is foolish. With respect to CNO; he suggested that they won’t default, and if they do they’ll recontract their debt. Therefore, in the long run their problems are not real. However, perceptions of reality are what drive the stock. When perception and reality align, the stock should go up. So, even if they default, it won’t matter. Companies rest covenants all the time.
Profiting in the 2nd quarter is highly likely, if not the 1st. Since it takes about a quarter to go both into serious bankruptcy procedures as well as debt collection, it will be hard to convince a judge of the need for either bankruptcy or insolvency when they post a profit.
What I see here is a company that you can buy at a P/E of 0.25 of forecast earnings assuming that it survives. It has pushed back filing its annual report because it is currently getting audited to see if it can continue as a company. The upside here is 3200%+. Conseco is less risky than its competitors because it focuses on high quality fixed rate investments and has little exposure to risky assets, as well as is focusing on decreasing exposure to these asset classes.
If you’re interested in some of the latest information on this company, you could try reading the Q4 2008 Transcript (Supporting Slides). My favorite part is on page 9, where a large, and in my opinion fairly uninformed, unidentified investor asks whether the insurance company could access TARP.
Disclosure: I own CNO in my account and in my investor’s accounts.