Five Ways to Enter the Municipal Bond Insurance Business

With Warren Buffett's Berkshire Hathaway (BRK.A) getting into the municipal bond insurance business, maybe it's time to take a closer look at the bond and mortgage insurers. Is Buffett getting in because he thinks the industry has hit bottom, or does he think that now is a good time to take advantage of the competition? Only time will tell.

All of the following have market caps over $1 billion:

MBIA Inc. (MBI) provides financial guarantees for municipal bonds, asset-backed and mortgage-backed securities, and other types of bonds and pools of assets. The stock has a P/E of 4.5, a PEG of 0.44, and a yield of 6.10%.

Ambac Financial Group, Inc. (ABK) provides financial guarantee insurance and credit enhancement products. The stock has a P/E of 11.5, a PEG of 0.28, and a yield of 2.9%.

MGIC Investment Corp. (MTG) is a provider of private mortgage insurance for home mortgages. Although the company has been generating negative earnings, the stock pays a yield of 0.40%.

PMI Group Inc. (PMI) is a provider of residential mortgage insurance and structured finance products in the U.S., and in several countries around the world. The stock has a P/E of 6, a PEG of 2.84, and a yield of 1.50%.

Old Republic International Corp. (ORI) insures first mortgage loans on residential properties. It also provides general insurance and title insurance services. The stock has a P/E of 10, a PEG of 1.52, and a yield of 4.10%.

Disclosure: The author has no positions in any of the above.

Comments

[Austin Myers:]

Buffet is entering the public finance side of the business only, and not because he thinks this industry has hit bottom. Buffet is banking that the monolines will continue to face downgrade pressures due to MTM writedowns in the CDO's they insure. The monlines will face trouble raising capital. We are already seeing municipalities forgoing insurance, and muni bonds trading at their underlying ratings. The monoline business model has lost credibility, many will likely go BK, and Buffett is taking advantage. He has been saying bad things about the business model of these companies for years.

2007 Dec 31 02:59 PM