A Bottom-Up, Fundamental Analysis of Insurance Stocks: Expert Money Managers Peter Neumeier and Brian Poma of Neumeier Poma Investment Counsel, LLC Share Their Investment Strategy with TWST

Wall Street Transcript

67 WALL STREET, New York - August 9, 2013 - The Wall Street Transcript has just published its Deep Value Investing and Other Strategies Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Bottom-Up Stock Selection - Value Oriented Strategy - Value Investing - Deep Value - Small Cap Investing

Companies include: Amtrust Financial Services Inc (AFSI), Questcor Pharmaceuticals, Inc. (QCOR), Novartis AG (NVS), Berkshire Hathaway Inc. (BRK-A), Mohawk Industries Inc. (MHK) and many more.

In the following excerpt from the Deep Value Investing and Other Strategies Report, an expert portfolio manager discusses his portfolio-construction methodology and his investment philosophy:

TWST: Would you provide our readers with some examples of stock holdings that are representative of your investment approach?

Mr. Neumeier: We've selected three ideas here, and I'll start with one. Over the last few years, we've been quite successful in selecting small regional banks with various attributes, and these banks have basically been our exposure to the financial sector of the market.

Recently, however, we've been taking profits on some of the banks that have more than doubled or even tripled in price over about three years. But there is one financial company that we still would buy at this point, and it's called AmTrust Financial Services (AFSI). We started buying it earlier in the year at about $31. This is a specialty insurance company that in our view is unique in the small-cap market. It really doesn't have exposure to catastrophe or property risks, and very little in auto-related exposure.

What they do is mostly workmen's compensation and product warranty insurance for small items, like electronic devices and so forth. They specialize in smaller policies where they are able to use their own proprietary technology to assess the risk and deliver the service efficiently.

This is a company that also has been superb at acquiring companies in their specialty and integrating them smoothly. We expect that to continue. Add it all up and you have a company that is able to earn a return on equity in the midteens or even the high-teens, a ROE which is unheard of in the insurance business.

When we came across the company, it was selling at less than 10 times 2013 projected earnings, and even now, after rising 30%, it's selling at about 11 times or 12 times earnings, which we consider to be reasonably cheap. About 30% of their revenue...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Rates

View Comments (0)