Selling Hartford, Buying Canadian National

Since the last time I wrote about my portfolio, things have been volatile. Here are my actions since then:

New Buys

• National Western Life Insurance
• Canadian National Railway

New Sells — Hartford Financial

Rebalancing Buys:

• Assurant (brnging it up to a double-weight)
• Dorel Industries

Rebalancing Sells:

• Allstate (2)
• Assurant
• Companhia De Saneamento Basico
• General Dynamics Crp
• Genuine Parts
• Hartford Finl Svcs Group Inc (3)
• Industrias Bachoco SA (2)
• Ishares Inc MSCI Brazil Index Fund
• Noble Corporation
• Safety Ins Group Inc
• Shoe Carnival Inc
• Vishay Intertech Inc (3)

Comments

After the plunge, and the run, I scaled out of Hartford three times, and then sold because of the high odds that they will take the TARP money. Taking TARP money has led to underperformance in the past, and though it looks like cheap capital, it can be a very expensive set of handcuffs to cut off.

If Allstate takes the TARP money, I will sell them as well, and buy a certain P&C reinsurer. I suspect that they won’t take it — only the desperate take TARP money.

I replaced Hartford with National Western Life. Little company, and illiquid. If you follow me here, limit orders only. It is a basic life an annuity company. No debt. Trades for half of book value. Currently profitable, but future profits are uncertain. One controlling investor, R. L. Moody, and the rest of the shareholder’s list reads like a “Who’s Who” of small cap value investing. I have not reviewed the accounting in detail, but when I reviewed it in detail six years ago, I thought the accounting was more conservative than most insurance companies.

With all of the cash building up from rebalancing sales, I needed to add another name with a strong balance sheet. I chose Canadian National. Unlike US railroads, they go coast-to-coast — less need for loading and unloading. Second, the valuation is not much higher than peers. Third, the balance sheet is stronger than all peers. Not that I think that any of the major North American railroads is at risk of failure, but it is unlikely that Canadian National will come under significant stress.

That’s all for now. So far, it’s been a good year for me. I’m running with cash at my upper 20% limit, so I am looking for safe and cheap ideas that would not get hit that badly in another pullback.

Full disclosure: long NWLI CNI DIIB.PK AIZ ALL SBS GD GPC IBA EWZ NE SAFT SCVL VSH

Comments

[marketman54:]

When HIG dropped under $7, I had my mom sell her life insurance policy.

May 17 06:07 PM

[gtmcduffy@g...:]

bloggingstocker.blogsp.../

May 17 06:12 PM

[JPPennypacker:]

Thanks for providing the update to your portfolio and your rationale for replacing Hartford with NWLI. I like that NWLI appears to be debt free and somewhat conservative and boring in a good way. Some of Hartford's activities have appeared to be a little bit on the desperate side in my opinion and especially going after Tarp money even after several banks have stated publicly their desire to pay back such funds and be done with the program. Good luck with your new investments.

May 17 07:31 PM

[bbowen7:]

CNI also is the consensus best operator in the North American railroad industry - best work rules; best network; best scheduling practices. In addition to the East-West route, they own the former Illinois Central Gulf Railroad and have bought a number of feeder lines in the upper midwest. They are also active in West Coast Canadian ports, providing and alternative to the high cost US ports. The downside is exposure to the basic materials and agricultural-based Canadian economy, but "this too shall pass."

May 18 02:17 PM

[SSALarry:]

I too recently picked up shares of CNI. I have owned them in the past, once for a nice gain, and once for a small loss. I picked them up this time because I believe they will be a big winner when housing turns, since they transport a large amount of wood products. I also like their idea for a pipeline on wheels, shipping butamin from the oil sands to the West Coast Ports. If the oil sands operators use the rail method as opposed to a pipeline, CNI could add a siginifican amount of business. My investment in CNI will be a long term investment.

May 18 09:43 PM

[ocean 2026:]

I first bought Nat Western Life back in 1974 right before I went to law school. Over the years it has often sold for less than half book value, I would buy and in a year or two the shares would realize their potential and I'd sell. A couple of years later I would notice the same pattern. In those days the stock traded in the teens. In April I noticed it at $106 and ..... you guessed it. There is no reason aside from the battered market that this isn't selling at $200. Their investment portfolio has declined but it will come back.

Jul 21 07:28 AM