I am a fan of your column and the analysis and insight that you provide in response to emails.
I’d appreciate your take on a company called Genworth MI Canada Inc. It has strong financials, a low PE, pays a strong dividend, has a history of raising the dividend but has not been performing as you would expect given the strong numbers it generates. Considering the stock goes x dividend on Monday I find it’s recent performance very surprising especially since it recently released great quarterly results that beat analyst expectations. What’s your take on why this stock is not trading closer to its book value of $27?
Thanks for the assignment. Genworth MI Canada Inc. is the largest of three private providers of residential mortgage insurance in Canada. Canada Mortgage and Housing Corporation is a crown corporation that operates in the same sector. Recently CMHC has announced that it is running close to the $600-billion limit imposed by the government and the question is will Ottawa push the envelope for them. Clearly there is a market opportunity for the private sector if CMHC gets capped.
As far as the financials for MIC, take a closer look at their fourth-quarter results reported on Feb. 2, 2012. Not that there were glaring misses, but losses on claims were up, net operating income was down as was investment income. When there are any flies in the ointment, even tiny fruit flies, it will tend to keep buyers in the sidelines.
A review of the charts will provide some guidance as to the prospects for the company as we go deeper into 2012.
The three-year chart tells the tale of a stock that broke support along $24.00 in July of 2011. Shortly thereafter a death cross surfaced leading to a severe retreat that took the shares down to the 52-week low of $19.11 on Sept. 22, 2011. The bounce off of that rock bottom has the stock struggling with resistance at $23.50 in the early part of 2012.
The six-month chart indicates the selling that came in just after the release of fourth-quarter earnings and the current test of support along the 50-day moving average. The MACD has generated a number of valid buy and sell signals since September of 2011 so make sure to consult this indicator for changes in momentum.
With a dividend yield of 5.3 per cent it's a hold for existing shareholders. For those considering a buy it would be prudent to see if support along the 50-day moving average is maintained. If it doesn’t hold then there is support at $21.00 and then at $20.00, which would provide good entry points.
Make it a profitable day and happy capitalism!
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