The insurance industry did not make huge moves during 2015, having registered a return of around 1.70%. However, in 2016, the insurance segment in the US is expected to continue its transformation, being affected by advances in technology, competition, and modest economic growth, as pointed out in an Ernst & Young report. The upcoming elections later this year also creates some uncertainty as there is a considerable level of probability of regulations and taxations in the industry. Moreover, the same as 2015 was marked by a number of M&A deals in the insurance industry, 2016 will represent a continuation of the same processes and more deals are expected to take place.
Meanwhile, the hedge fund sentiment towards insurance stocks has been mixed. In this article we are going to discuss top four most popular insurance stocks (excluding health care plan companies). We compile the hedge fund sentiment based on 13F filings of more than 700 investors, whose activity we track as part of our small-cap strategy. We believe that we can imitate some of the smart money investors’ picks that they are collectively bullish on, and, in this way, benefit from the resources and skills they employ while making their bets. However, our research showed that the best approach is to follow these funds into their top small-cap bets, which can outperform the market by as much as 95 basis points per month on average over the long run (see the details here).
#5 MGIC Investment Corp. (NYSE:MTG)
Investors with Long Positions (as of September 30): 47
Aggregate Value of Investors’ Holdings (as of September 30): $1.34 Billion
At the end of September the hedge funds and other institutional investors within our database held over 42% of MGIC’s outstanding shares. While the total number of these funds declined by two during the third quarter, the aggregate value of these holdings fell by almost 30%, mostly on account of an 18.2% drop registered by MGIC Investment Corp. (NYSE:MTG)’s stock price.
MGIC Investment Corp’s stock ended 2015 with losses of around 5%, but with a P/E ratio of 15.6 and a price/book multiple of 1.3, the stock is cheaper than many of its industry peers, the company may be a promising investment. Analysts are also optimistic on the company’s prospects and earlier this year BTIG Research and Compass Point reiterated ‘Buy’ ratings on the stock. However, Compass Point lowered its price target to $11.00 from $13.00. Also earlier this month, Goldman Sachs trimmed its price target on MGIC’s stock to $11.00 from $12.00. MGIC is expected to report its fourth-quarter and full-year results on January 21, with the consensus EPS amounting to $1.08, while the revenue estimate stands at $1.04 billion.
Out of the investors we track, the largest shareholder is Doug Silverman and Alexander Klabin’s Senator Investment Group, which owns 13.14 million shares. Other investors bullish on the stock include Rob Citrone’s Discovery Capital Management, John Paulson’s Paulson & Co., and John Griffin’s Blue Ridge Capital.