We were discussing some investment ideas today and we thought that it would be nice to share some of these ideas with readers. In general, we are cautious of today's markets but we are still looking for value even as the markets continue to reach new highs. However, we would wait for a market correction before committing significant capital to the stocks discussed in this article.
Homeowners Choice, Inc (HCI)
Homeowners Choice is a property insurance company that operates in Florida. The firm specializes in renters and homeowners insurance in the lucrative Florida property insurance market. We believe that Homeowners Choice has a very strong balance sheet and is selling for an attractive valuation. Homeowners Choice has a market capitalization of $359 million with a net cash position of $239 million (66% of market cap). Also, Homeowners Choice has inexpensive valuation ratios with a TTM PE ratio of 8.15, a forward (2014) PE ratio of 8.97, and a PEG ratio of 0.7.
Our interest in Homeowners Choice is that it is a good way to play the improving US residential real estate market. Particularly, we think that it is a good way to play the improving residential real estate market in Florida, which was hit hard by the last recession. As new construction in Florida expands the firm's client base and increasing home prices increase insurance premiums, Homeowners Choice should experience significant sales growth. We plan to consider making an investment in the company when there is a major threat of a hurricane hitting Florida. With a properly timed entry into Homeowners Choice shares, we believe that we can make substantial returns.
Phillips 66 (PSX)
Phillips 66 was spun-off from ConocoPhillips (COP) in May of last year. The company is primarily a petroleum refining and marketing company. Valero Energy (VLO) is Phillips 66's major competitor and we covered Valero in a previous article. We believe that Phillips 66 has a solid balance sheet and that it is selling for a very attractive price. Phillips 66 has $3.47 billion in cash and $6.97 billion in debt relative to $6.38 billion in TTM EBITDA to service its moderate debt load. Furthermore, Phillips 66 is cheap with a TTM PE ratio of 8.23, a forward (2014) PE ratio of 8.73, and a PEG ratio of 0.71.
We are bullish on petroleum refiners that have refineries located within the continental United States. In our opinion, in the near future, there will be a significant increase in domestic crude oil production in the continental United States. With this increase in domestic crude oil production, we expect that the spread between domestically produced crude oil and imported crude oil (delivered by water transport) to widen. As the cost of domestically produced crude oil falls, we expect the refining margins of United States based refineries to widen. As these refining margins widen, we believe that United States based refiners will earn solid profits for investors. In sum, we think that an investment in Phillips 66 is a good way to play the shale oil boom that is changing the energy dynamics of the economy of the United States.
Intel Corporation (INTC)
Intel is the largest designer and manufacturer of microprocessors and chipsets in the world. Historically, Intel has derived most of its revenue from sales of components used in the manufacture of PCs. We believe that Intel has a solid balance sheet with $17.16 billion in cash and $13.35 billion in debt relative to $21.15 billion in TTM EBITDA. Also, Intel is inexpensive with a TTM PE ratio of 12.12, a forward (2014) PE ratio of 11.95, and a PEG ratio of 1.17.
In our opinion, Intel is 1 of only 5 large capitalization technology stocks that are a good value at this time. These 5 large capitalization stocks are Apple (AAPL), Cisco Systems (CSCO), Microsoft (MSFT), Google (GOOG) and of course Intel. What we like about Intel is that the market is underestimating Intel's ability to adapt to changes in the technology industry. Intel has dominated its market niche for decades and it has thrived because its corporate culture is designed to deal with the fast changing environment of the technology industry. We think that the global PC business peaked in 2012 and that it will experience a slow decline for many years. However, based on Intel's history, we believe Intel will replace this part of its business with new technologies to address the growing demand for high performance microprocessors for tablets and mobile devices. In sum, we believe that if investors wait until it is obvious that Intel will adapt to changes in its business then the opportunity to invest at an attractive price will have pasted.
Disclaimer: Ulfberht Capital is not an investment advisor. This article is not a recommendation to buy or sell securities. Always consult your investment advisor before making any investment decision.