Genworth Financial, Inc. (NYSE:GNW) shares have been volatile for the past several weeks, but have generally trended lower and now trade near a 52-week low. The market correction, and recent drop in financial stocks, has been due to everything from the trading loss at JP Morgan (NYSE:JPM) and the LIBOR rate scandal, both of which have taken a toll on insurance stocks. There have also been company-specific reasons for Genworth shares to decline including ongoing losses with the mortgage insurance unit, and the recent resignation of its CEO, Michael Fraizer. However, as most investors have been currently focused on the negatives in the markets and at Genworth, this has created a very undervalued stock and a potentially unique buying opportunity. Here are 3 reasons why investors should consider buying Genworth shares at current levels:
- Just recently, investment analysts at Sandler O'Neill set a $9.50 price target on Genworth shares. This would give investors a possible double from current levels, which is just one reason why Genworth shares look like a worthwhile investment.
- Genworth has been searching for a new CEO ever since Michael Fraizer left the company. The shares could get a lift when the company announces a new CEO, especially if it is a candidate that the market believes will create shareholder value. Some investors have been calling for a break-up of Genworth into at least two companies. This could unlock hidden value in the stock. If the new CEO outlines a plan like this, the shares could see a major rally.
- An activist investor has recently increased its stake in Genworth. Highlands Capital Management owns about 6% of Genworth and was pleased to see the CEO depart. Jonathon Jacobsen of Highlands Capital said: "Fraizer has been an impediment at the company to both operating and structural changes. We applaud the board for taking the step that they took today." A recent article says that Highlands has:
plans to discuss options for its global mortgage insurance assets,
its U.S. mortgage insurance assets and its retirement and protection
businesses. These talks will include risk mitigation strategies and a
possible sale or spin of assets, the filing said.
With the shares trading for a fraction of book value, which is about $30 per share, and since the company remains solidly profitable, the stock appears to be deeply undervalued. The recent changes at the company, involvement of a major activist investor and the likelihood a new CEO could be appointed soon, all could lead to positive upside catalysts for the stock.
Here are some key points for GNW:
Current share price: $4.83
The 52-week range is $4.62 to $9.68
Earnings estimates for 2012: 74 cents per share
Earnings estimates for 2013: $1.38 per share
Annual dividend: None
Data is sourced from Yahoo Finance. No guarantees or representations are made.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.