Saturday, January 19, 2008

Title insurers could be on the menu

"[Stock market investing] is the one sphere of life and activity where victory, security and success is always to the minority and never to the majority. When you find anyone agreeing with you, change your mind. When I can persuade the Board of my Insurance Company (National Mutual) to buy a share, that, I am learning from experience,is the right moment for selling it."
John Maynard Keynes quote (Sep 1937) p154 The Keynes Mutiny Justin Walsh

With the depressed housing market, housing related stocks are very unpopular at the moment. The housing industry in the US will remain in recession for at least 2008 and probably 2009 and the general economic outlook is negative. Unsurprisingly, housing related stocks such as homebuilders, mortgage insurers, banks etc have been on Wall Street's sell lists. Title insurers have also been swept up in the large wave of selling of housing related stocks.

When will these stocks bottom? Who knows. But the storm will eventually pass , it always has in the past. Nevertheless, it will claim its victims, companies with weak balance sheets or banks and lenders who have written poor loans will suffer the consequences.

Title insurance is a very old business and is indispensible in all real estate transactions. When you buy a property you want protection from anyone else laying claim the property, you want a clean title. Title insurance provides this protection. In fact it is required by law.

Title insurance is a very profitable business because defects or problems with title are generally very low. Its required every time a property is sold or refinanced, residential or commercial.

Over the foreseeable future, title insurers will face headwinds from lower transaction volume and value, as vendors become reluctant sellers, but this is normal in the title insurance business during a down period.

I recently read an excellent presentation from the value investing conference by Zeke Ashton of Centaur Capital on two title insurers, Fidelity National Financial(FNF) and LandAmerica Financial(LFG). The stock prices of both these companies are currently trading close to 52 week lows. What is interesting also is that insurer Markel Corporation(MKL), know for its value investing prowess, recently disclosed a new position in LandAmerica and is seeking permission to push its ownership to over 10%. Markel also owns stock in Fidelity National Financial.

So could title insurers now be on the menu for patient long term investors?

Here is the presentation link (remember also that reading intelligent analysis is no substitute for your own research. A good place to start but not to end)

Disclaimer: The above opinions represent the authors own views and are not intended as investment advice and should not be relied upon as investment advice.

Disclosure: I own shares in Markel Corporation(MKL) but no other securities discussed.

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