Fidelity National Finance: A Big Potential Turnaround Stock

My wife and I have been actively house hunting in recent weeks, and believe it or not, we actually put in our first offer yesterday. We’ll see how it goes–the house just came back on the market after being on for much of last year, and at a drastically reduced price. So we’re not sure how much the seller is willing to budge.

But I’m not telling you just to babble about my life. What surprised us as we began shopping is that the housing market is, well, pretty strong, at least around here. I’m not saying prices are rising, or that sellers still aren’t taking some discounts to their asking prices. All of that is still true. But of the 15 to 20 houses we’ve seen either with our Realtor or at open houses in the past three months, I would say all but two or three have sold.

How is this possible? I think there are a lot of people out there, like my wife and I, who have plenty of money on the sideline and have been waiting to pounce. Now that prices have dropped 20% or so during the past couple of years, and as mortgage rates hover around 5%, buyers are coming back.

All of that leads me to Fidelity National Finance (FNF), a turnaround story. I much prefer growth stocks, but this company is the biggest title insurer in the country, thanks to a couple of recent acquisitions. And while it lost money in 2008, it’s already seeing greatly increased activity, and analysts see earnings surging back into the black this year. Here’s what I wrote about FNF in a recent issue of Cabot Top Ten Report:

“Thanks to a recently completed acquisition, Fidelity National Financial is the nation’s largest title insurer by market share, and that’s the main reason for the stock’s strength today. While the housing market remains in a downtrend, there have been many signs that the overall number of transactions (thanks to lower mortgage rates and lower housing prices) is beginning to trend up. True, lots of that is because of distressed sales–foreclosures, short sales, etc.–but to a title insurer, what matters most is volume, not housing prices. Fidelity National has been aggressively cutting costs, chopping 27% of its workforce and closing many offices of its recently-acquired businesses, which will help earnings going forward. And management is optimistic–even back in December and January, order flow was double what was seen during the post-crash November doldrums, and with the Federal Reserve’s actions (purchasing hundreds of billions of dollars of Treasuries and mortgage backed securities in the months ahead) this company is poised to thrive. Analysts see earnings rebounding to $1.55 a share this year, and we think that could be conservative.”

Even if the recent uptick in housing sales is because of distressed properties, which has been the case, that will still help a company like Fidelity National. FNF recently zoomed ahead from 14 to 21 on heavy volume, and has consolidated the past week around 20. I think it’s a decent buy around here, with a tight stop in the 17 to 18 range.

Comments

[mdpath:]

Do you own it?

Apr 08 09:08 AM

[xmaitlandx:]

>>>'...But of the 15 to 20 houses we’ve seen .......in the past three months, I would say all but two or three have sold....'<<<

You would say?!? Hmm. Does this mean your recommendation is based on the uninformed conjecture of a potential home buying couple in just one market in the country?

That certainly isn't much to go on. Did the earnings report (or is loss report more appropriate) fall in line with your expectations?

Apr 27 05:43 PM

[Adrian lofton:]

Fidelity Employee Assaulted After Reporting Security Breaches - Google: (Lofton v Fidelity) Get the real story

Nov 02 02:54 AM