Updating My Outlook For MGIC Investment Corporation

| About: MGIC Investment (MTG)
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Since my previous mention of MGIC Investment Corporation (NYSE:MTG) on August 8, 2012, shares are up more than 50%.

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MTG Chart
data by YCharts

Monthly Operating Statistics

In early September, MTG released its monthly operating statistics for August. The report was bullish for the stock; MTG wrote $2.5 billion in new insurance, and Primary Delinquent Inventory dropped by nearly 3,000 loans to 150,388. These numbers indicate that things might not be as bad for MTG as the stock indicates. MTG shares traded as low as 66 cents in early August.

Freddie Mac Dispute

The dispute between Freddie Mac and MTG, which is what sent shares below $1 in early August, is still ongoing. As discussed by Seeking Alpha contributor L. Sigurd in his piece Reviewing MGIC's Complaint Against Freddie Mac, this issue is far from resolved. If the issue is resolved on favorable terms for MTG, I expect the stock to move much higher. However, I think a negative resolution, in which MTG would not be able to write insurance on Freddie loans would send shares somewhat lower.

MGIC Defers Debt Payment

On September 12, MTG decided to postpone an interest payment on convertible debt until 2022. Following the news, the stock moved sharply lower. Clearly, the decision to postpone the payment on interest is indicative of the stress currently facing MTG. However, it should be noted that, despite this news, MTG has been able to maintain most of its recent gains.

Sector Rally

It should be noted that the move in MTG, as shown by the chart below, has been a part of a larger mortgage insurance sector rally that has also included Radian (NYSE:RDN) and Genworth (NYSE:GNW). In general, all sectors exposed to an improving housing market have been doing well of late. Among the strongest stocks so far in 2012 have been home building stocks such as Standard Pacific (SPF), KB Home (NYSE:KBH), and D.R. Horton (NYSE:DHI).

RDN Chart
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SPF Chart
data by YCharts

Sell Some, Hold The Rest

Given the massive move higher in MTG, I think it is probably prudent to take some profits at these levels. Personally, I recently sold all of my MTG because I wanted to put the money to use elsewhere. However, I think there remains a possibility that the stock moves considerably higher from here. One possible strategy for holders would be to sell the initial dollar amount of stock purchased and let the rest run.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.