I cannot find a stock that I think is more undervalued than NWLI. It is probably selling at 6 and 1/2 times
2012 earnings and about 37% of book value. I consider book value to be conservatively stated with no intangible assets on the balance sheet.
In comparison, Berkshire Hathaway trades at about 16 times earnings and almost 120% of book value.
I readily admit that I prefer Berkshire's compensation plan for its executives and that it has no stock options. In addition it is more diversified and has a terrific record. There is no executive team that I trust and admire more than Warren Buffett and Charlie Munger. However, the difference in valuation has caused me to sell much of my position in BRKB and invest some of the money in NWLI. I was a buyer of NWLI the day of the latest earnings announcement and I have kept a significant amount of cash with which I may buy more NWLI. NWLI is now my largest stock position.
Unfortunately, the current investment environment does not look too good. I expect that there will be others like me selling winners this year to get preferential tax rates on long-term capital gains. in addition we have to deal with the "fiscal cliff" and I think tax rates will go up. But you have to invest in something and I prefer NWLI to cash.
I can not understand why investors just continue to sell NWLI at these prices. The company has a very good record of growth for many years and yet the stock has done little. I will be patient, and I think we will see big gains in NWLI.
I would not call NWLI a big gamble. I consider it one of the safest stocks in the market. How can a stock as cheap as NWLI, with a balance sheet as strong as theirs, and a business as well run as it is go down much further? There is a huge margin of safety here.
The reasons people are selling NWLI are:
1. No yield - buy MET, get a good yield which is going up and also a very cheap stock relative to the market.
2. Management focused on the business not shareholders - again, why own NWLI when MET states they will have 20% of their market cap in excess capital by the end of the year and they are looking for ways to return it to shareholders once they get rid of their bank and out from Fed supervision.
3. Interest rates are low - people perceive this as being bad for insurers and it is, but NWLI has managed it well. Again not as well as MET who bought a bunch of protection for rates.
Plus, I think a lot of people have held the shares for a long time and are just selling out of frustration. Also, a major mutual fund which was holding NWLI has been selling due to redemptions and management change (think they may be done now).
So, with the "Fast Money" world we are living in, it is very cheap, but it is giving all of us the opportunity to acquire shares at cheap prices. I firmly believe if you buy now, 5 years from now, the BV will be close to $500 and the share will be much higher. It does tend to trade up toward BV during a good market. But, I also don't blame people for selling. If I was a hedge fund doing quarterly reports, I'd be selling too and moving to stock like MET. MET pays the dividend and also should double over the next few years, so way easier to explain to investors.