MGIC Investment Corp. (MTG), Radian Group Inc (RDN): Why Mortgage Insurers Shares Soared

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of mortgage insurers, including MGIC Investment Corp. (NYSE:MTG) and Radian Group Inc (NYSE:RDN), soared as much as 28% and 11%, respectively, following an analyst upgrade.

So what: Before the opening bell, Barclays PLC (ADR) (NYSE:BCS) upgraded both

MGIC Investment Corp. (NYSE:MTG) and Radian Group Inc (NYSE:RDN) to “overweight” from “underweight.” The covering analyst, Mark DeVries, pointed to the fact that more upside than downside exists in the sector, and anticipates earnings will normalize by 2015 as legacy losses are wiped off the books. He placed a price target of $14 on Radian Group Inc (NYSE:RDN) (about 42% upside from where it closed yesterday) and an $8 target of MGIC Investment Corp. (NYSE:MTG) (nearly 100% upside from yesterday’s close of $4.18).

Now what: I often mention that analyst upgrades should be taken with a grain of salt, but this call just seems so astronomically bad, I don’t even know where to begin. I can somewhat agree with Mr. DeVries with his take on Radian Group Inc (NYSE:RDN), which has a high, but shrinking, risk-to-capital ratio around 22. However, the movement and analysis on MGIC Investment Corp. (NYSE:MTG)  over the past few days is so far off base it’s ridiculous. The insurer has reported 10 straight quarterly losses, it’s risk-to-capital ratio is nearly double what U.S. regulators want to see at the high-end (44.7:1), and its CEO, Curt Culver, proclaimed that it’s likely to get worse before it gets better. As a reminder, insurers have been forced to stop writing policies or have been forcibly shut down for risk-to-capital ratios in the 42:1 to 58:1 range! This whole thing stinks of emotional trading and I’d avoid mortgage insurers like the plague at the moment.

The article Why Mortgage Insurers Shares Soared originally appeared on and is written by Sean Williams.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

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