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Discussion Starter · #1 ·
Genworth has been on my watchlist for a considerably long period of time. Here are some current stats:

Price/Earnings = 7.76
Price/Book = 0.871
Yield = 5.10%
5Y Net Dividend Growth = 34.13%
Dividend Payout Ratio = 39.29%

These are nice figures, however this stock is obviously judged based on the negativity surrounding the Canadian real estate market.

Would love to hear some opinions on this one.
 

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Well, there is a big argument surrounding whether the Canadian real estate market is over-valued or fairly valued (I don't think many believe it is undervalued).

There is an equally big argument about whether Canadians are over-indebted or reasonably indebted (I don't think many believe they are under-indebted).

In either of those cases, do you really want to be the owner of the company that pays the 1st dollar of losses when the defaults hit the fans.

Other then that nagging statement, MIC is a great, money making, dividend paying machine.
 

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Super long this one.
- Well above regulatory capital requirements
- 15% discount to book more than adequately covers potential defaults
- LTVs are lowest in Alberta, where people are concerned
- Much more painful to default in Canada vs. U.S.
- Rates are going even lower, so variable rate mortgages less costly to service
 

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I have no position in this stock, but I have looked into it closely for the reasons that you and the OP identified.

As I see it, if there is a crack in the real estate market or economy of Canada, MIC stock is going to lose money. There are 3 ways this will happen and none of what has been posted will prevent it.

1) If the crack in real estate pricing is not very deep, the stock will simply drop on uncertainty. In a few years this drop should be recovered and if earnings continue to show positive momentum, higher highs will inevitably be provided.

2) If the crack in real estate pricing is reasonably deep, the capital values mentioned will prevent bankruptcy, but the requirement to recapitalize will inevitably dilute current shareholders and these losses will be permanent.

3) If the crack is really, really, deep, they will be the 1st to go bankrupt and of course all will be lost.

The LTV ratios you mentioned in Alberta, may or may not be correct, but in any event, their main business is not insuring mortgages with low loan to value ratios, their main business is insuring mortgages with high loan to value ratios.

The only way this stock doesn't lose money is if the Canadian Real Estate market chugs along without interruption. That may happen, since so far it has, but I would not bank on much more return then the dividend, since if we don't see a crack in the Canadian Real Estate market, I would assume, investors will always be waiting for one and keep the price of this stock at a lower then average PE.

All just my opinion and so far I have been wrong.
 

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I don't own this stock, but I have watched it on and off for the past year. I agree with what OptsyEagle said. These macro factors can potentially have strong impact on this company. From a valuation point of view, I think this is as good of a value stock as one can get. From my cursory look, the underlying numbers look pretty decent.
 

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How are these risks any different than owning bank stock?

I have no position in this stock, but I have looked into it closely for the reasons that you and the OP identified.

As I see it, if there is a crack in the real estate market or economy of Canada, MIC stock is going to lose money. There are 3 ways this will happen and none of what has been posted will prevent it.

1) If the crack in real estate pricing is not very deep, the stock will simply drop on uncertainty. In a few years this drop should be recovered and if earnings continue to show positive momentum, higher highs will inevitably be provided.

2) If the crack in real estate pricing is reasonably deep, the capital values mentioned will prevent bankruptcy, but the requirement to recapitalize will inevitably dilute current shareholders and these losses will be permanent.

3) If the crack is really, really, deep, they will be the 1st to go bankrupt and of course all will be lost.

The LTV ratios you mentioned in Alberta, may or may not be correct, but in any event, their main business is not insuring mortgages with low loan to value ratios, their main business is insuring mortgages with high loan to value ratios.

The only way this stock doesn't lose money is if the Canadian Real Estate market chugs along without interruption. That may happen, since so far it has, but I would not bank on much more return then the dividend, since if we don't see a crack in the Canadian Real Estate market, I would assume, investors will always be waiting for one and keep the price of this stock at a lower then average PE.

All just my opinion and so far I have been wrong.
 

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I like MIC, for what it's worth. I bought at $35 last year and sold at $39.50 or so in Dec, after I got two dividends and the special dividend. This is one of my top 3-4 to get back into especially at $30. Look at the government's reaction today to $1M houses in Toronto: "We're looking to get out of the residential housing insurance business". a.k.a. more business for Genworth, at insurance rates which have been legislated higher (3.15% vs 3% a year ago). If housing crashes, sure it will hurt; but if housing just keeps moving along like it has the last 20 years, MIC is generating a lot of cash, more than meets regulatory requirements and will likely keep raising dividends and buying back shares.
 

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How are these risks any different than owning bank stock?
They are not, except MIC covers the first 20% of losses and the bank covers everything after that. So if the real estate market drops only 20%, MIC eats all the loss and the bank loses nothing.

So that being said, in Canada's current real estate market, I would prefer to get my dividends from a bank, then MIC.

They are insuring against any losses on high ratio, loan to value, mortgage debt. Not sure if I need to explain that any more. I think the risks of doing that should be self explanatory.

If you are comfortable with the Canadian real estate market or the debt levels of the average Canadian, then MIC simply has a license to print money. If it turns out there is a problem with the Canadian real estate market or the debt levels of the average Canadian, then MIC is going to be hit hard. Very hard.

Just my opinion, of course.
 

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Discussion Starter · #9 · (Edited)
My evaluation of this position thus far is that the uncertainty and fear of our real estate market has driven this one down to the point where the numbers have become incredibly appealing. I cannot find anything concrete on the actual health of the real estate market other than conflicting opinions and sentiments. The only thing concrete is that the numbers are attractive.

Based on Buffet's mantra of “Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”, I may be a buyer of this stock shortly.
 

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To further OptsyEagle's point: they insure Genworth high-ratio mortgages. The big question I always come back to is who is why would you ever get Genworth to insure your mortgage when CMHC insurance is the same price? Does that question have any implications on the risk profile?

Killer Z: unfortunately you have to evaluate the risk without concrete numbers on the health of the real estate market. By the time the biggest signs of trouble (default rate, price declines) become evident, it may be too late to dance out. So what's the chance of a future correction of size X, and what impact will that have on MIC? If you're thinking 40% for a complete blow-up, then perhaps the numbers are not so attractive... if you think 1% and just a haircut then perhaps they are. You have to make that call yourself...
 

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I sold my MIC position a few weeks ago and put the proceeds in Home Capital.

Both companies are plays on the Canadian real estate market. Both knocked down by about the same percentage off their 52 week highs. Both look cheap.

I switched to HCG because it appears less risky than MIC. Going by memory, MIC has 20-25% of their insurance policies in Alberta. HCG has virtually no exposure to AB market.
 

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Don't get me wrong guys. The odds are better that everything works out fine with MIC, then not. I just think of it as a sort of super catastrophic insurance company. Their revenue and earnings and dividends and stock price will always be doing wonderful, right up until the hurricane hits...and then depending on the hurricane, you might get some of your investment back or you might not. How can you really value a company like that.

That being said, many Super Cat insurers manage one catastrophe after another and work out just fine, in the longer term. Standing directly in front of a hurricane can have some shorter term challenges, however, even for them.

For me, I spend enough time wondering about the risks associated with all the lending the banks do, in my opinion, MIC just takes that risk up a notch or two.
 

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I don't own Home Capital but would love to.

I assume HCG is a long-term hold for you GoldStone? Where do you own this guy - non-reg. or other accounts?
 

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I don't own Home Capital but would love to

advisor i'm curious, you're normally fairly conservative with stock selection.

what is so appealing about the sub-prime lending group? the home capitals, chesswoods, ACQs of this world? i know i know, they've been the flavour du jour, at least on cmf ... but surely they're also the most exposed to a recession.
 

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Acq is slightly different as their lending is only what 10% of their business?

I like MIC, longer hold.

Mic and more so HCG have great dividend increases the last few years. If you hold for 20 years. And history repeats itself. They will yield more than the major banks. But of course like many say if there was a housing crash they might be in trouble.

MIC has increased its room for loses going forward in their predictions due to the oil crisis.
 

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chesswood & acq are recent IPOs, no 20-year-histories. Home capital may have a predecessor, however i'm not aware of an unbroken 20-year dividend record.

an expression such as "MIC increased their room for loses [sic]" doesn't say very much, without dollar figures. Furthermore it's losses, not loses, no?

i'm continuing to stand aside from companies whose customer base is heavily sub-prime borrowers. In a recession such companies are likely to suffer. Along the lines of Coventry 2007, which was the canary in the coal mine meltdown of 08/09. I'm hearing songs like Sing me a Song of Yesteryear.
 

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I sold my MIC position a few weeks ago and put the proceeds in Home Capital.

...

I switched to HCG because it appears less risky than MIC. Going by memory, MIC has 20-25% of their insurance policies in Alberta. HCG has virtually no exposure to AB market.
I posted the above statement on Friday, March 6. Well, would you know it, I sold HCG the very next Monday. OptsyEagle's comments upthread served as a catalyst.

In particular, OptsyEagle wrote this:

"For me, I spend enough time wondering about the risks associated with all the lending the banks do, in my opinion, MIC just takes that risk up a notch or two."

I spent a weekend thinking about this and decided that I very much agree. I have enough exposure to Canadian real estate via banks. Layering MIC or HCG on top of the banks is too much risk for my taste. So I'm out.
 

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Humble you don't like me huh... I sent that quick from my phone today

MIC and HCG have had huge growth in their dividends in the last few years.... if they BUILD on that streak for another 20 years(or even 5-10 years), your dollar investment now, will be significantly larger than the big banks.

More risk for more rewards...

Canadian's real estate is different than the USA. We can not put our keys in the mailbox and walk away with no penalty.
Yes its overpriced, but it doesn't mean it can't get more overpriced, just like the stock market in the past year.

GoldStone, that BNN guy said he owned a small piece of Genworth...

Everyone knows it has some risk behind it... No one is trying to hide that... I don't think the housing market will explode... We'll see what happens over the next year

Like any stock you decide if you want it or not... I think this one is definitely worth looking into




They are a member of CDZ.to
Here's their 5+ year streak almost doubled the yield, along with 2 special dividends
http://investor.genworthmicanada.ca/English/share-information/Dividend-History/default.aspx




If you think the housing market might collapse, stay clear out this name. If you have enough invested into real estate with your house, you don't need to add more exposure.
There are good reason to be fearful of this stock.... I like what they have done in the past, and will play it out for now.

It's a $30 stock right now, I'm guessing it will be a $35 stock in a year from now, and everyone will still be in their houses. Only time will tell though :)
 
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