The trading in Genworth MI (TSX: MIC) feels like it is in the middle of unwinding a short sale position in Genworth MI. Short investors (2,276,672 shares as of July 13, 2018) are obviously losing money. The quarterly reports have usually been positive news events for the company as they report record low loss ratios and insanely high profit margins. Everything is as rosy as it can get – high profit margins, low unemployment, low default rates, and people paying their mortgages. The stock is trading above tangible book value for the first time, ever.
Sounds like a good time to sell.
I’ve sold the last of my position today. The last block of shares went off at $46.06. This has been my longest held position, initiated in 2012, and partially sold and partially added on at opportunistic prices. For a considerable length of time between 2012 to 2016, it was my largest position.
I will still continue tracking the stock as my accumulated research (I have written more about Genworth MI than any other person on the entire internet) will come in handy if the price range descends into a more opportunistic range.
There’s probably a bit of upside remaining in the stock (in a good case could go to $50), especially if the short sentiment decides to cover up in a hurry. But I’m not one to play these types of guessing games and getting out at a 5% premium to book is sufficient for my investment purposes.
The cash will be parked – I still don’t see much compelling opportunity out there.
If I were you I’d keep it. Just because it’s fairly valued doesn’t mean cash is better. Cash will earn nothing. My sell policy has evolved to the point where I will only sell for one of three reasons: the stock is clearly overvalued; I was wrong about it; or I have something new and compelling to buy. Of course, there is always the “world class cash parking utility” as an option 😉
Too late! And sadly the world class cash parking utility is still at an unattractive price. I don’t want to “pay it forward” half a year. Instead, the CRA will get their share of my capital gains.
Fortunately moving mildly up the risk spectrum has a some other targets of opportunity in the “second class cash parking” category. Unfortunately the liquidity of them is about as good as dripping a plastic bottle of children’s glue onto paper without squeezing it.
Are you back in this stock now that the price is low again? Just curious…
Nope.
90% BV is not low by historical standard on this name.
I will not be surprised to see a larger discount in the future. This depends on how fast loan to values rise up due to property depreciation in major markets – to a degree instigated with rate increases, but also B-20 and in the case of BC, provincial government intervention, isn’t helping. It’ll force them to reserve more capital on their existing insurance and also slow the revenue recognition curve. Even if the underlying loans are solid with people earning income sufficient to pay the mortgages (i.e. no defaults), it will have an accounting impact on MIC.