Freddie Mac seems pretty positive about the US real estate sector in its recent August 2011: US housing outlook report. Job gains, house sales surge and lower refinancing – all will help in pulling up the US housing market over time.
Frank Nothaft, VP-chief economist of Freddie Mac, “expects to see a bit of spring in homes sales activity during the second quarter.” God bless Frank!
Now, if we are to go by what Freddie Mac says, is this the right time to buy MGIC (MTG)?
Before we begin, we must understand one thing. It is always foolish to judge a stock by the market value. Remember what Warren Buffett says, buy when every one sells.
The stock price of MGIC Investment Corp has dropped by over 70% in the last six months. Well, MGIC is not alone it seems. MetLife (MET) fell by 32.6%. American National Insurance (ANAT) fell by 8.83%. Genworth Financial (GNW) fell by 52.56%. Even American International Group (AIG), which invests in a diverse portfolio, saw a dip of 40% in the last six months.
It is probably not MGIC alone that is affected by the volatile US housing market. But what we must think about is which of these companies will be able to survive this rough journey and come out as a winner. At least, in these turbulent times, some will turn sour, and some will show their true competence. And we, as intelligent Seeking Alpha investors, would have to sift the good ones from the bad ones. So, let’s find out whether MGIC is worth it or not.
Here are a few things that must be highlighted from the latest financial statement.
Total revenue has gone down to around $367 million this quarter from $406.34 million same quarter last year.
Losses incurred have gone up to $459.6 million this quarter from $320 million same quarter last year.
Shareholders’ equity has gone down by -24.3% (as per MSN money, although my calculation says a bit less, -9.35%) from what was reported in the last quarter in 2010.
Book value per share has gone down to $7.52 this quarter from $8.33 last quarter last year.
Okay, I understand that other companies, Radian Group (RDN) and PMI Group (PMI), are facing even bigger issues at the moment. But that’s for another article. We are talking about MGIC and it is NOT happening for MGIC at all.
Back to the topic, should we keep hope about MGIC? Well, if you ask me, I believe we must break Warren Buffett’s rule at times. We waited for the last three quarters and still things seem to be just going down.
If you have not bought MGIC and are only considering if you should, my suggestion – don’t, rather go for AIG, which seems to be at least doing fine. And if you already own MGIC, you probably have lost a lot of money. You don’t really have a choice. Sell the stock and invest in something that shows promise at the moment.
There is a proverb – a bird in hand is always worth more than two in the bush.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.