ACAS Earnings Underwhelming

ACAS announced their earnings this morning. They were not as good as expected as they are tangentially impacted by reduced revenues from mortgage REITs they provide services to.  This is another classic value play though. Their NAV is now 19.28.  But they will likely be trading this morning a bit over $13.00  the beauty of their business model is they have funds to invest in most attractive opportunities out there. And at buying $19 for $13 seems like a good deal, they are doing that with their funds. So while shrinking is not a path to greatness, I suspect it can be a path to above average returns for the next 18 months.

GNW Drops Post Earnings

GNW announced their earnings last night (Genworth Financial Announces Second Quarter 2013 Results).  In happy hour trading, they dropped about 5%.  Reading through it, I was trying to understand why the decline. 

My first thought was that they have really run up, so I do believe the expectations were for a blow out.  They are up 24% since the start of June.

Then I wondered if it was something they did not say.  I know one potential catalyst was the spin-off of their Australian Mortgage Company.  And I saw no comment on that firing back up.

Part of the issue may be the drop in book value. They did not say anything about it (that I saw), but it went from 32.90 to 29.76 in just a quarter.  That is a 9.5% free fall. Actually, the more I think about it, the more I think this is the reason for the drop, although Wall Street Cheat Sheet says it is the miss on revenues.

Recall in many ways a life insurer acts like a bond as by far their largest asset is typically bonds. And as interest rates went up about 100 bps in the quarter (and have gone even further this quarter), the value of bonds drops. A lot of insurers I am looking at are seeing about a 5% drop in BV from this issue.  GNW is clearly more leveraged to it,  which would suggest more of their bonds are in longer durations (I expect they provide some detail about this in financial supplement and I will dig in more).  So if you do some back of the envelope math and say interest rates moved 100 bps and they lost $3 in BV.  I suspect over the next year or two, we have another 200 bps to go up, so they could lose another $6.  Now the flip side is that as interest rates move back up to "normal" levels, GNW will start increasing their income as new cash will get invested at higher rates (though I was surprised to see their annualized yield was 4.8%, which struck me as high, suggesting a lot of their investments have been held pre 2008).  So I think over the next couple of years, you may see GNW book value steadily declining (even with positive operating income); perhaps to the $23 area. Still, they are trading at $13, so if we can see them move closer to a $23 par value, that would be sweet.

Long story short, I am going to do a little more digging regarding their investment portfolio.  I still think they are a good stock to hold.  Not looking to buy more, but I think people looking to buy may get a decent entry point.

Two Tables to Ponder

I have shown these tables a bit in the past, but I think they bear repeating.  The first shows all the stocks I owned on May 2nd and how they have fared since in ascending order.  Note how it is kind of inverse to dividends.  Meaning stocks that pay good dividends are poor performers, and more growth-oriented stocks are the best performers.  I expect this trend to continue (frankly, I think we have just started).

Stock	May 2nd price	Dividends	Current	Change
BHK	14.95	0.22	13.07	-12.6%
O	51.09	0.36	45.16	-11.6%
NSU	3.64	0.07	3.32	-8.8%
RIG	52.33	0.84	47.84	-8.6%
OIBAX	6.62	0.04	6.17	-6.8%
NEM	32.66	0.35	30.51	-6.6%
CIM	3.29	0.09	3.11	-5.5%
STRZA	23.91	-	22.91	-4.2%
STO	23.45	1.16	22.62	-3.5%
MSFT	33.16	0.23	32.05	-3.3%
FCX	30.34	.31	29.45	-2.9%
AOD	4.17	.08	4.06	-2.5%
JQC	10.38	.19	10.16	-2.1%
INTC	24.11	0.23	23.62	-2.1%
KMF	35.15	0.46	34.64	-1.4%
CSQ	10.64	0.21	10.55	-0.8%
PRE	92.48	0.64	92.68	0.2%
AAPL	445.52	3.05	456.99	2.6%
SD	5.18	-	5.36	3.5%
PGR	25.12	-	26.03	3.6%
ABR	7.43	0.12	7.77	4.6%
DLB	31.61	-	33.07	4.6%
KLIC	11.08	-	11.66	5.2%
NVDA	13.74	0.08	14.53	5.7%
TC-PT	15.60	0.41	16.52	5.9%
ABC	54.85	0.21	58.79	7.2%
VIAB	67.25	0.30	72.22	7.4%
GA	7.63	0.42	8.32	9.0%
CF	183.58	0.40	202.14	10.1%
CA	27.23	0.25	30.10	10.5%
RDA	9.62	-	11.19	16.3%
CYOU	28.00	-	32.66	16.6%
WU	15.53	0.13	18.44	18.7%
BAC-WTA	5.25	-	6.25	19.0%
LPS	27.28	0.10	32.76	20.1%
KFY	15.99	-	19.45	21.6%
CSCO	20.73	0.17	26.05	25.7%
GNW	10.33	-	13.34	29.1%
GTAT	3.67	-	4.88	33.0%
UIS	18.60	-	26.11	40.4%
NUS	54.28	0.30	82.83	52.6%

The second table just shows how the various stocks in the MFI index have performed since January 1st.  I think it is enlightening to see how many are above 80%.

Index	Stock	Start	Last Week	Current	YTD Change	Weekly Change	Shares
1	APOL	20.92	18.10	18.17	-13.1%	0.4%	11.14
2	AGX	18.00	16.44	15.79	-12.3%	-4.0%	12.95
3	BAH	13.92	18.91	19.16	37.6%	1.3%	16.75
4	CA	21.98	30.18	30.34	38.0%	0.5%	10.61
5	CPLA	28.23	48.81	48.96	73.4%	0.3%	8.26
6	CF	203.16	181.40	201.53	-0.8%	11.1%	1.15
7	CSCO	19.65	25.84	26.29	33.8%	1.8%	11.86
8	DELL	10.14	13.10	13.05	28.7%	-0.4%	22.99
9	DLX	32.24	40.48	41.10	27.5%	1.5%	7.23
10	DMRC	20.70	22.36	21.51	3.9%	-3.8%	11.26
11	DLB	29.33	33.01	33.01	12.5%	0.0%	7.95
12	GME	25.09	46.40	47.00	87.3%	1.3%	9.29
13	GNI	67.20	73.60	73.13	8.8%	-0.6%	3.47
14	GTAT	3.03	4.74	4.88	61.1%	3.0%	76.93
15	HLF	32.94	59.05	63.70	93.4%	7.9%	7.08
16	HFC	46.55	45.96	47.08	1.1%	2.4%	5.01
17	IDCC	41.09	40.94	40.34	-1.8%	-1.5%	5.67
18	INTX	9.48	9.87	9.92	4.6%	0.5%	24.59
19	ESI	17.31	26.79	27.02	56.1%	0.9%	13.47
20	JCOM	30.60	46.46	45.95	50.2%	-1.1%	7.62
21	KLIC	11.99	11.17	11.74	-2.1%	5.1%	19.44
22	LPS	24.62	32.96	32.89	33.6%	-0.2%	9.47
23	MANT	25.94	29.41	29.63	14.2%	0.7%	8.99
24	MSFT	26.71	32.08	32.31	20.9%	0.7%	8.73
25	NATR	14.48	19.13	18.84	30.1%	-1.5%	16.10
26	NSU	4.28	3.46	3.31	-22.7%	-4.3%	54.47
27	NTI	25.44	27.69	27.76	9.1%	0.3%	9.16
28	NUS	37.05	82.56	83.03	124.1%	0.6%	6.29
29	PDLI	7.04	8.45	8.44	19.9%	-0.1%	33.11
30	PETS	11.10	17.05	16.75	50.9%	-1.8%	21.00
31	PBI	10.64	14.98	16.85	58.4%	12.5%	21.91
32	POOSF	1.42	-	-	-100.0%	#DIV/0!	164.63
33	POZN	5.01	5.72	5.70	13.8%	-0.3%	46.53
34	QCOR	26.72	51.12	52.47	96.4%	2.6%	8.72
35	RTN	57.56	71.11	72.33	25.7%	1.7%	4.05
36	RPXC	9.04	18.83	18.45	104.1%	-2.0%	25.79
37	SAI	11.32	16.14	16.36	44.5%	1.3%	20.59
38	STX	30.42	41.43	41.42	36.2%	0.0%	7.66
39	SVLC	2.52	1.68	1.67	-33.7%	-0.6%	92.51
40	SAVE	17.73	35.57	32.97	86.0%	-7.3%	13.15
41	STRA	56.17	44.01	44.40	-21.0%	0.9%	4.15
42	TNAV	7.99	6.23	6.14	-23.1%	-1.4%	29.18
43	TZOO	18.99	29.64	29.31	54.3%	-1.1%	12.28
44	UIS	17.30	25.81	26.16	51.2%	1.4%	13.47
45	USMO	11.68	15.54	15.78	35.1%	1.5%	19.96
46	USNA	32.93	78.60	82.11	149.3%	4.5%	7.08
47	EGY	8.65	6.06	6.00	-30.6%	-1.0%	26.95
48	VCI	25.78	28.49	29.12	13.0%	2.2%	9.04
49	VG	2.37	3.39	3.41	43.7%	0.4%	98.36
50	WCRX	12.04	21.29	21.65	79.8%	1.7%	19.36
	Total	11,656	15,143	15,272	31.0%	0.8%