Genworth Financial, Inc. (GNW) offers long-term care insurance, mortgage insurance and other financial products. This stock was hit hard as the company reported losses in the mortgage insurance division over the past couple of years. However, it appears that a clear, long-term uptrend is finally in place. While the stock is no longer near the 52-week lows, it still appears quite undervalued. Genworth is fortunate to have other offerings besides just mortgage insurance because this has helped minimize the impact of losses from this division. The worst for the real estate market appears to be over, and Genworth looks strong enough to earn its way out of the weak housing market. Genworth is likely to continue reporting higher profits in the coming years and that could drive the stock up further.
It's worth looking at a couple other mortgage insurance companies below as well, since this shows the value that Genworth offers. Here are 4 reasons why Genworth shares are worth buying, particularly on any pullbacks to about $7.50 per share, which is where it appears to have strong support:
- Recent housing data is showing signs of improvement and this could be the first small sign of a sustainable multi-year recovery in housing. Reports show that housing experienced the first yearly increase in prices in 15 months, and this points to a steady improvement in the housing market. Genworth will benefit from a housing recovery as it will lead to greatly reduced losses in the mortgage insurance division.
- Unemployment data is also improving and job growth often leads to more demand for housing. Applications for unemployment benefits recently fell to the lowest level in 4 years, and the number of people receiving unemployment and extended benefits has declined as well. As better news about housing and the job market makes the headlines, consumers will become increasingly confident to buy homes, as well as insurance products, annuities, etc., that Genworth offers.
- A number of metrics indicate that Genworth shares remain deeply undervalued. This stock has a book value of about $33.69 per share. Furthermore, the stock trades for around 5 times forward earnings. The average stock in the S&P 500 (SPY) Index trades for over 12 times earnings, and by most indications Genworth is poised for a higher-than-average recovery in earnings over the next few years. Genworth also trades at a higher discount to book value when compared with its peers.
- Genworth has been reporting improved financial results. It, reported earnings of 22 cents per share for the fourth quarter of 2011, which compares favorably with a loss of 33 cents per share for the same period in 2010. Losses from the mortgage insurance division were $94 million, which is a huge improvement over losses of $352 million in the prior year.
Here are some key points for GNW:
Current share price: $8.74
The 52-week range is $4.80 to $13.64
Earnings estimates for 2012: $1.15 per share
Earnings estimates for 2013: $1.71 per share
Annual dividend: None
Radian Group, Inc. (RDN) is another financial services company that offers mortgage insurance. This stock appears to be higher-risk because it is still reporting losses. Radian reported a fourth-quarter net loss of $121.5 million, or 92 cents per share, but that is a big improvement over net losses of $1.1 billion, or $8.55 per diluted share in the fourth-quarter of 2010. This stock has a book value of $8.88 per share, and it has upside as well. However, Genworth appears to have less risk.
Here are some key points for RDN:
Current share price: $4.42
The 52-week range is $1.80 to $7.20
Earnings estimates for 2012: a loss of $1.88 per share
Earnings estimates for 2013: a loss of 7 cents per share
Annual dividend: None
MGIC Investment Corporation (MTG) offers mortgage insurance. This
stock was hard-hit in 2011, but it has nearly tripled off the 52-week low. MGIC shares look speculative as the company continues to report losses. However, the stock has a book value of $5.95 per share, and it has upside, especially if the housing market really turns around. However, for just a few dollars more per share, Genworth looks like a better buy because it is more diversified, has a much higher discount to book value, and it is profitable now.
Here are some key points for MTG:
Current share price: $4.90
The 52-week range is $1.51 to $9.64
Earnings estimates for 2012: a loss of $1.27 per share
Earnings estimates for 2013: a loss of 11 cents per share
Annual dividend: None
Data sourced from Yahoo Finance. No guarantees or representations are made.
Disclaimer: Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.