MGIC Investment's Book Value Growth Better Than I Predicted

I last wrote about MGIC Investment Corporation (MTG) in September. The company recently reported net income for the quarter ended September 30, 2006 of $130.0 million, compared with the $142.4 million for the same quarter a year ago, a decrease of 8.7%. Diluted earnings per share was $1.55 for the quarter ending September 30, 2006, compared to $1.55 for the same quarter a year ago.

It is interesting to note that book value per share increased from $47.31 to $50.85 from Dec. 05 to Sept. 06, an increase of 7.48%.

Thus, MTG is on track to achieve better book value per share growth than I had conservatively predicted (8.5% per annum) in my previous analysis.

Additionally, management has been doing great job at buying back shares.

MTG 1-yr chart:

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[FIG trader]

MTG is trading at about a 30% discount to fair value, as long as it doesn't "mess up" meaning, there isn't som massive credit whole; with a low teens ROE, the stock should be at 150% of book value. In fact, pricing will soon start to improve in their business, so the market, which is overly concerned with credit losses is misunderstanding the cyclical shifts and improving pricing and ROE leverage through 2010. I (and Bill Miller; big holder) have been watching them, underperform. I think in this climate, its a good long to pair with a short like ACF (much riskier "credit")