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Nautilus Inc. Message Board

  • astral_tsar astral_tsar Sep 3, 2004 12:35 PM Flag

    Value Stock To Pump

    Hey guys. For anybody here who likes to look into financials, I have an idea you might want to look at. I'll warn you up front that it's my own largest holding -- so I may be biased. Check out all the SEC filings yourself. There's also been a short discussion of intrinsic value on the stock's Yahoo board.

    So fwiw the stock is ITIC, Investors Title Co. It's a small, growing title insurance company. Right now underwriting EPS* are about $3 and the stock goes for around $31. EPS growth averaged 14% over the past 20 years. At a PEG of 1.0, those earnings are worth about 14*$3 or $42/share. So far so good. (These earnings are quite conservatively reported too. For example, ITIC reserves 10% of premiums for losses; industry giants FNF and FAF reserve only 5%.)

    But, even better, the company is holding another $22/share in cash and securities above and beyond all reserves. So the total value per share is something like
    Intrinsic Value ~ $42 + $22 ~ $60/share.

    If I've done all this correctly, ITIC at $30 is a great deal. Of course I don't have to warn NLS die-hards that value stocks can take a while to pay off. But I sure won't be selling ITIC below $50/share.

    NOW, the whole title insurance industry is selling at pretty low P/Es right now. So ITIC probably isn't the only good deal. But it's the only one I've found that can cover 70% of the share price in securities. That's downside protection!

    *EXCLUDING about $0.80 interest and dividend earnings on securities held.

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    • The entire Mortgage Insurance industry is undervalued and the best buy out there with little risk is FNF. Selling at ~38, morningstar has it valued at ~60.

      • 1 Reply to fourthandshort
      • There are some differences. Title insurance giant FNF is interesting and popular. Its management is very innovative and creative in financing, having recently completed a very interesting new stock issue. FNF's P/E is very low (7.5, about the same as ITIC's) but FNF doesn't have much in the way of liquid assets. It has also historically depended very heavily on refi earnings which could be a challenge as interest rates rise.

        ITIC is much less popular and its management is much less inventive in areas such as new stock sales. But its biggest strength is its balance sheet, with $22 in bonds per share above and beyond all operating needs. After taking those bonds away from the purchase price of 30 (Peter Lynch style), ITIC only costs 8 bucks net for $3 in underwriting earnings. So ITIC is an excellent buy. ITIC has historically been much less hard-hit by interest rate increases than the rest of the title insurance industry, and the bonds only add to that protection.

    • hey, I own some of that in a retirement account--it's done well

    • I am going to have a look see. If it intrigues you it should for me too. Thanks for the tip off.

 
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