Tag: MIC

Another reason why Genworth MI Canada (TSX: MIC) is a cash machine is because delinquency rates have significantly decreased since the 2008-2009 financial crisis:

Also, a stress test scenario where unemployment goes from 8% to 11% and property values go down 15% (which seems to be a low number – higher decreases in property prices would increase severity):

Unless if there is a huge crash in the commodity market, I don’t see this happening. The crash might occur, but not when you have massively loose monetary policy like we do today. The only reason why the stock got as low as it did (bottoming out at $16.72) is betting on a massive real estate bust. Now those expectations are moderating somewhat.

The past five days of trading of Genworth MI Canada (TSX: MIC):

The last day’s volatility (remember: volatility means down and up) is relatively unusual for the company. In the 722 trading days preceding this one, the largest volatility was a 7.4% increase in price on November 4, 2011. The largest volatility down was 5.2% down on October 17, 2011. Both of those days were on higher volume than today’s average. Today’s performance (5.61%) was its fifth most volatile day in its trading history.

The market is coming to my idea of fair value much sooner than I was originally thinking. It would be even nicer if Genworth sold it off for $30/share, but I digress.

I am generally skeptical of stocks when they do parabolic-type increases that we have seen over the past two weeks of trading, but the obvious conclusion is that somebody presumably wanted to get their hands on some shares of Genworth MI Canada (TSX: MIC) quickly.

My theory is that whoever decided to do the “dump the shares slowly starting April until they’re gone” sale was gone after the couple high volume days in late July and then it was off to the races once that supply dump was concluded. This is one of those rare moments where I have some technical analysis insight (but alas it is still backward-looking).

What I find rather funny is that I (hopefully) timed the bottom relatively well (my average price is around $18/share) but I still feel quite bad that my entry wasn’t perfect. That is the emotional feel. The cold, hard rational world of mathematics, however, says that it is impossible to pick that exact bottom – you will not be that person picking up shares at $16.72 unless if you are very lucky and getting 100% of what you wanted in your portfolio at that bottom price.

With any luck the stock will get around to book value, which is around $26.30/share when you strip out intangibles. It won’t be a straight line otherwise I will start to really get worried. The dream scenario is if they’ve found somebody to buy out the subsidiary business of Genworth (NYSE: GNW). Heaven forbid if they fetch a premium to book value.

I will warn readers that now that I have a tendency of picking tops and bottoms when writing about upward and downward price spikes, respectively!

When stocks open trading ex-dividend, all things being equal, they should trade at the previous closing price minus the dividend. This can vary slightly depending on what happens in the market overnight, but without any relevant news the price should follow that formula.

Genworth MI Canada went ex-dividend today, which was a 29 cent dividend, but their opening price did not even make a blip to reflect this dividend.

Yahoo sometimes adjusts the charts to reflect dividends (especially large special dividends), and sometimes it does not. It always pays to find out whether huge price drops are caused by special dividends or distributions, or whether it was purely market action. For instance, EnCana’s chart at the end of 2009 is still unadjusted by the Cenovus distribution. In MIC’s instance they did not update the chart so what you are seeing is the unadjusted trading action.

I wonder if there are any studies done on future performance of equities compared to how they trade after they go ex-div. Intuitively I would guess there is no correlation whatsoever, but you always hear of amateurish websites that talk about “dividend capture” strategies where you’d buy stocks the day before they go ex-dividend and sell it the day after to “capture the dividend”. What they frequently forget is that the market marks down the stock appropriately (not to mention liquidity), but at least at this one time, the market seemed to forget about the dividend.

Readers are likely aware of my position in Genworth MI Canada (TSX: MIC) and they reported their second quarter results today. The quarter was relatively boring, with losses on claims slightly lower and investment income slightly lower (due to lower rates). Loss ratio is 32% and expense ratio is 17% (total 49%) for the quarter, which is tracking roughly on-line the previous year. Delinquency rates continue to decline, with total portfolio down to 0.17% (from 0.25% year-previous).

Portfolio is at a 4.2% yield with a 3.5 year duration, approximately 3% in cash, 7% equities and 90% in fixed income (corporate and government).

Nobody said this company will be exciting. It isn’t.

Book value, excluding intangibles, is $26.30/share. With the market value being $16.97 as of today’s closing, even if the company exhibits mediocre performance, it is still likely undervalued. They key risk continues to be some sort of collapse or meltdown in the real estate market. Also, underwriting business will be slowing due to recent changes in the Government of Canada’s policies on mortgage insurance.