We know that Warren Buffett is a value investor, and a contrarian investor as well. He has made billions for himself and shareholders by buying stocks or even entire companies when many investors were selling at low valuations. As an example, it was recently disclosed that Warren Buffett purchased about 10 million shares of General Motors (GM), while the stock was near 52-week lows. We also know that Warren Buffett loves the insurance business. Berkshire Hathaway has significant amounts of money invested in various insurance companies, including Geico, General Re, etc. We also know that Berkshire Hathaway owns a number of building related companies which include: Acme Brick Company, Clayton Homes, etc.
Below are a couple of companies that seem to fit Warren Buffett's value and contrarian method of investing. One is in the insurance business, and the other is a leading construction and engineering firm. Both stocks have recently dropped which appears to offer investors an excellent buying opportunity. At these low valuations, it's possible that Berkshire Hathaway or another major company or hedge fund could have these stocks on the radar. At any rate, both stocks have analyst price targets that indicate these stocks could double in value.
Genworth Financial, Inc. (GNW) shares were trading at close to $10 in 2012, but the stock has seen a brutal selloff and it now trades for almost half that level. A combination of weaker than expected earnings, the resignation of the CEO, Michael Fraizer, and the announcement that Genworth would postpone the initial public offering of its Australian mortgage insurance unit, all contributed to the selloff. The Australian IPO would have raised a substantial amount of capital and strengthened the balance sheet. However, the company still plans to proceed with the IPO in 2013, so investors might be short-sighted in overreacting to this delay.
The company reported earnings of $47 million in the first quarter of 2012, or about 9 cents per share. This was lower than the $59 million or 12 cents earned in the same period last year. It was also below analyst estimates of 11 cents per share. However, it's important to note that even in challenging times, Genworth remains profitable. It appears that this company will be able to ride out the remaining challenges in the housing market and eventually prosper once again. Patient investors could see significant rewards as Genworth shares trade well below book value, which is $30.02 per share.
The stock recently took another big hit on May 16, after Credit Suisse (CS) lowered the price target on Genworth to just $6 per share. However, after a near 50% drop in the stock, that downgrade is a bit late, and investors who sold on that news could soon see a rebound in the shares after the market realizes that other major analysts still have much higher targets. According to Yahoo Finance, the average analysts' consensus price target is $9.94 per share. That could provide investors with nearly double from current levels.
Also, if investors are going to follow anyone's lead, it should be to buy Genworth shares as three insiders did just days ago, not some Credit Suisse analyst who was late to the party with a downgrade. On May 8, 2012, Martin P. Klein (an officer) bought 15,000 shares at $5.60, for a transaction value of $84,000. On May 6, 2012, James A. Parke (a director) bought 25,000 shares at $5.54, for a transaction value of $138,500. Thomas E. Moloney (a director) bought 1,000 shares at $5.70, for a transaction value of $5,700. These insiders probably know this company better than any Credit Suisse analyst does, and it is important to note that they have skin in the game, which is more than most analysts can say.
Here are some key points for GNW:
- Current share price: $5.11
- The 52 week range is $4.80 to $11.38
- Earnings estimates for 2012: 82 cents per share
- Earnings estimates for 2013: $1.47 per share
- Annual dividend: None
Tutor Perini Corporation (TPC) shares are trading at what appears to be an absolute steal after the company reported disappointing financial results, with a 3 cent loss for the first quarter of 2012. However, this leading construction and engineering firm also reiterated full-year profits of about $2.10 to $2.30 per share, and the company has a large backlog of work at nearly $5.9 billion. That backlog is equivalent to about an entire year's worth of revenue.
The company also continues to win new orders as it just received an $82 million order to build a casino and hotel in Arizona. Another factor to consider is that shorts are active in this stock and seem to pile on when it shows any weakness. This stock dropped significantly last quarter as well, and shorts pushed it to unreasonable levels. Shortly thereafter, the stock surged right back over $15, and shorts were pushed aside by bargain hunters. The same pattern could repeat soon.
The latest data shows about 1.2 million Tutor Perini shares are short and based on average daily volume of about 147,000 shares, the shorts represent about 8.3 days of trading volume. This all appears to be another case of investors selling and shorts getting carried away, just when they should be buying. Tutor Perini shares are now trading for about 5 times earnings and well below book value which is $29.63 per share. In early May, 2012, UBS set a $24 price target for Tutor Perini shares, which would represent gains of about 100%.
Here are some key points for TPC:
- Current share price: $11.12
- The 52 week range is $10.08 to $21
- Earnings estimates for 2012: $1.91 per share
- Earnings estimates for 2013: $2.40 per share
- Annual Dividend: None
General Motors, Inc. shares were cheap enough to attract the likes of Warren Buffett. Many investors were recently selling this stock near the 52-week lows, but the shares posted solid gains after the news of the new investment came out. General Motors is making better and more fuel-efficient cars and trucks and it recently raised sales estimates for 2012, from a range of 13.5-14 million to 14-14.5 million cars. This would be the highest level seen for several years. GM is another example of a highly-profitable and undervalued company that investors should focus on.
Here are some key points for GM:
- Current share price: $21.91
- The 52 week range is $19.00 to $32.08
- Earnings estimates for 2012: $3.48 per share
- Earnings estimates for 2013: $4.59 per share
- Annual dividend: None
Data is sourced from Yahoo Finance.
Disclaimer: No guarantees or representations are made. 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.