Take a Risk with Conseco

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:

Corporate liquidity

• 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 2^nd quarter is highly likely, if not the 1^st. 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.

Comments

[ArtfulDodger:]

Glen Bradford:

I'm always glad to see someone put his money where his mouth is.

The best to you on your investing. I'm going to take a look at CNO myself.

Thanks. Keep it up.

Mar 22 08:51 AM

[alivewweb:]

The point of speculation is outrageous returns in a short period of time and the point of investing is the same but the time span is different. The stock market has proven once again it is not the place to put your money when you think you are saving it.

In hindsight we were all speculating to different degrees as we are now. Even those watching from the sidelines with their hordes of cash. Players who are down now should realize it is a long ball game and like the Superbowl you are in it to win it.

Many of the best speculations have occurred when investors stop counting the companies assets and get caught up in the downward price spiral of the stock. If you believe in the company and its managers then double down or triple down or quadruple down.
It Is the only way to win this game.

CNO is also a personal speculation of mine as is GNW, ACAS and FMD.

Mar 23 09:48 AM

[Glen Bradford:]

My article was re-written. The initial title was "Conseco's Got Money", and the article was edited down to bare bones. There was more information on debt covenants and how having this doubling of cash that is not in the Q4 numbers pushes them into greener territory. The issue here is that Conseco may have more investment losses in the future. This issue is slowly being resolved as you notice that the global financial markets are being helicoptered with life saver money.

Break out the surf board and catch the wave of opportunity.


On Mar 23 09:48 AM alivewweb wrote:

> The point of speculation is outrageous returns in a short period
> of time and the point of investing is the same but the time span
> is different. The stock market has proven once again it is not the
> place to put your money when you think you are saving it.
>
> In hindsight we were all speculating to different degrees as we are
> now. Even those watching from the sidelines with their hordes of
> cash. Players who are down now should realize it is a long ball game
> and like the Superbowl you are in it to win it.
>
> Many of the best speculations have occurred when investors stop counting
> the companies assets and get caught up in the downward price spiral
> of the stock. If you believe in the company and its managers then
> double down or triple down or quadruple down.
> It Is the only way to win this game.
>
> CNO is also a personal speculation of mine as is GNW, ACAS and FMD.

Mar 23 11:03 AM

[ThunderBolt:]

Someone is there who thinks my way... Have been holding CON for a while and is doing good for me as of now....

Apr 01 10:36 PM

[ocean 2026:]

This company is high-risk - hi reward. Its leveraged to the hilt debt almost equals assets, however its business is improving and there are clear signs of a turnaround. Monitor this one closely, however I am long shares having bought most under $2

Jul 21 07:31 AM

[stockpeeker:]

Great call back in late March. CNO is up 500% since then.

Aug 06 04:11 PM