Investing in Great Companies

Raskolnikov

Ok, so we've talked enough about trash, so maybe we can throw the discussion open to class? What I'm asking is, what is the very best company that you admire/own/would like to own that you feel is safe, reasonably priced and that can make a decent return over a long period of time. That means no penny stocks, nothing highly cyclical or volatile. What we're looking for is something that you would feel confident in holding for at least 10 years and is something that would be at home in a war widows and orphans fund.

I have a few ideas that I will post later.

strmin

Mine is Kimberly-Clark Corporation KMB. I'm going to keep it forever.
Low P/E, stable growth, good dividend, 35 years consecutive dividend increases, strong brands.
I bought it for 59.09, but ever today's price is good enough to buy.

Raskolnikov

I've mentioned one of my favourite companies in another thread when it was trading at about $16.80, it's now up to $18.63 in less than two months, a nice 10% gain, but I feel there is more to come.

The name of the company is CNA Surety, and it's one of the best insurance underwriters in America.

Price/book is 0.9, which is absolutely ridiculous for a quality underwriter that hasn't lost money in nearly ten years. Book value has grown at 17% annually for the last 5 years, despite this impressive performance, the share price has not kept up. Book value itself is quite clean, consisting mostly of government bonds and agency back RMBS, so there's not much worry of writedowns. Company will do about $3 in earnings this year which like I said in the other thread puts it at a PE of over 6. One hidden gem on the balance sheet is their loss reserves. They have consistently overestimated future losses on business that they have written. Given the trend, it's likely that the company will be able to recover a lot of these liabilities.

So not only are you buying a wonderful company, you're buying a cheap company. If you apply a very conservative PE of 10, you get a very fair valuation of $30 a share. Even with this price, you're completely discounting the possibility of future growth. If you buy this with a timeline of five years, I think you'll double your money at very least, with the possibility of some outsized returns.

pirelli

Raskolnikov wrote: »

Ok, so we've talked enough about trash, so maybe we can throw the discussion open to class? What I'm asking is, what is the very best company that you admire/own/would like to own that you feel is safe, reasonably priced and that can make a decent return over a long period of time. That means no penny stocks, nothing highly cyclical or volatile. What we're looking for is something that you would feel confident in holding for at least 10 years and is something that would be at home in a war widows and orphans fund.

I have a few ideas that I will post later.

Sopk.OB was trash but...

BIDU - Baidu.com, Inc. (ADR) (NASDAQ:BIDU) ( Proper chinese muck)

Reason: Bidu has pleased investor for many years now. Hopefully it will continue. There is 15% promised below.

Baidu.com (BIDU:NYSE) target raised at Kaufman to $115. Growth in the China search advertising market is accelerating. Buy rating

SQM - Sociedad Quimica y Minera ( NYSE:SQM) (Chilean Rubbish )

Reason They were a bargain a couple of months ago at half the price they are now. I would still hold this company as it has a large stake in the LITHIUM industry which will boom should electric cars come online as planned.
They scalp the lithium off shallow pools with little or no mining. This is highly cost effective.

DLB - Dolby Laboratories, Inc ( NYSE: DLB)

Reason: They have royalties from a huge range of electronics. They get basically get paid cash for doing nothing and they have beaten Analysts estimates over 40 times thus far. They have lots and lots of cash.

MrMatisse

Raskolnikov wrote: »

I've mentioned one of my favourite companies in another thread when it was trading at about $16.80, it's now up to $18.63 in less than two months, a nice 10% gain, but I feel there is more to come.

The name of the company is CNA Surety, and it's one of the best insurance underwriters in America.

Price/book is 0.9, which is absolutely ridiculous for a quality underwriter that hasn't lost money in nearly ten years. Book value has grown at 17% annually for the last 5 years, despite this impressive performance, the share price has not kept up. Book value itself is quite clean, consisting mostly of government bonds and agency back RMBS, so there's not much worry of writedowns. Company will do about $3 in earnings this year which like I said in the other thread puts it at a PE of over 6. One hidden gem on the balance sheet is their loss reserves. They have consistently overestimated future losses on business that they have written. Given the trend, it's likely that the company will be able to recover a lot of these liabilities.

So not only are you buying a wonderful company, you're buying a cheap company. If you apply a very conservative PE of 10, you get a very fair valuation of $30 a share. Even with this price, you're completely discounting the possibility of future growth. If you buy this with a timeline of five years, I think you'll double your money at very least, with the possibility of some outsized returns.

RMBS= Mortgage backed securities. 'So there is not much worry of write downs?'

You have to keep loss reserves so you can cope with an unexpected event.Given the trend? what trend? that so far they havnt faced a big loss event?Rubbish again in this forum.

Raskolnikov

You're making a fool out of yourself by trying to discuss things that you know nothing about.

Really-Stressed wrote: »

RMBS= Mortgage backed securities. 'So there is not much worry of write downs?'

These are agency backed RMBS, that means that they are insured against default.

I am not the only one who says that the balance sheet is very safe. Independent insurance rating agency, A.M. Best have rated CNA with an A rating, indicating that they believe it is very strong. A.M. Best have an excellent track record and are not afraid to downgrade insurers who are in questionable shape.

Really-Stressed wrote: »

You have to keep loss reserves so you can cope with an unexpected event.Given the trend? what trend? that so far they havnt faced a big loss event?Rubbish again in this forum.

I really don't know why you're struggling to understand such a simple concept.

CNA clearly have loss reserves that are too high. For the last six years, they have been over-estimating these numbers. Over-estimating losses indicates a very prudent and conservative operation. Here are the figures for the last ten years.

Total gross (deficiency) redundancy
$ (29,963) - 1999
$ (29,718)
$ 23,150
$ (36,739)
$ 89,090
$ 73,686
$ 68,849
$ 85,948
$ 92,757
$ 53,752 - 2010

Raskolnikov

If anyone wants an insurance primer from an investment point of view, have a read of this - http://www.aaii.com/investing/article/risky-business-how-to-pick-winning-property-casualty-insurer-stocks

ixus

Off topic posts deleted. Report a post if your unhappy.

strmin

Raskolnikov wrote: »

I've mentioned one of my favourite companies in another thread when it was trading at about $16.80, it's now up to $18.63 in less than two months, a nice 10% gain, but I feel there is more to come.

The name of the company is CNA Surety, and it's one of the best insurance underwriters in America.

Price/book is 0.9, which is absolutely ridiculous for a quality underwriter that hasn't lost money in nearly ten years. Book value has grown at 17% annually for the last 5 years, despite this impressive performance, the share price has not kept up. Book value itself is quite clean, consisting mostly of government bonds and agency back RMBS, so there's not much worry of writedowns. Company will do about $3 in earnings this year which like I said in the other thread puts it at a PE of over 6. One hidden gem on the balance sheet is their loss reserves. They have consistently overestimated future losses on business that they have written. Given the trend, it's likely that the company will be able to recover a lot of these liabilities.

So not only are you buying a wonderful company, you're buying a cheap company. If you apply a very conservative PE of 10, you get a very fair valuation of $30 a share. Even with this price, you're completely discounting the possibility of future growth. If you buy this with a timeline of five years, I think you'll double your money at very least, with the possibility of some outsized returns.

CNA Financial bids $22 a share for rest of Surety.
Not really close to your valuation, but still very good gain. Congrats

Raskolnikov

Looks like I need to find a new company

Anyway, the offer is a joke. In the most recent quarter, CNA did $0.69 in earnings. TTM, that give you $2.76 earnings for the year. The $22 offer gives you a PE of just under 8, that is disgustingly low for a solid, growing company with a great track record. Also, the $22 offer is about 1.1 times book. For a great underwriter, I don't think it's unreasonable to have to pay 1.5 times book, which would get us closer to $30 a share.

I still think the parent company will have to increase their offer, although I still don't think I will get fair value for it

OfflerCrocGod

Easy, Reckitt Benckiser. Very boring though.

Raskolnikov

Shareholders are revolting at SUR beacuse the buyout offer was completely ridiculous. The share price has gone up to $23.61 as of now. There's more to come, I reckon.

pirelli

Raskolnikov wrote: »

Shareholders are revolting at SUR beacuse the buyout offer was completely ridiculous. The share price has gone up to $23.61 as of now. There's more to come, I reckon.

Is that what happened. Great Pick there Raskolnikov. Where do you see this going.

Raskolnikov

I took $23.46 today. This might be worth a few more Dollars, but I'm not sure it's worth hanging on for.

Raskolnikov

strmin wrote: »

CNA Financial bids $22 a share for rest of Surety.
Not really close to your valuation, but still very good gain. Congrats

At $26.50 now, still undervalued though. I am sickened that CNA are probably going to be allowed to steal this company.

Raskolnikov

By the way, I have discovered a company, another insurer, that's just pure quality. I feel that even with the recent run up in price that it's still undervalued. After you strip out intangibles, it's trading at book value, which is completely ridiculous considering the return on equity that this company has done for years upon years.

http://www.google.com/finance?q=LON%3ABEZ

Given recently acquisitions in the insurance domain, I actually value this company at a conservative £1.70. Have a look at historical records for other insurers. I will admit it's not as good as SUR, but it's still probably in the top 5 of all insurance companies in the entire world that I have encountered. Selling at book value, I think any investor will do quite well out of it, at £1.30, I reckon you'll get double digit returns in the near-term.

As usual, I appreciate any thoughts on this company.

donalabu

Hi Rask
That looks like a sound company you ve found. Figures are sound,s low p/e, low bookvalue not too much debt a decent dividend. I see its down another bit due to crisis in Greece. Best of luck with it.


Here another couple of companies might be worth a look
1. Vivendi VIV
2. Ageas EBR:AGS
3. Telefonica SA
4. Robert Wiseman Daries LON:RWD

ROK ON

Does anyone here use screens such as Graham criteria, Greenblats formula, Piotroski screen?

I tend to use them quiet a bit and while I have been bearish on the nature of this market I am finding more and more interesting companies popping up.

ionapaul

Raskolnikov wrote: »

By the way, I have discovered a company, another insurer, that's just pure quality. I feel that even with the recent run up in price that it's still undervalued. After you strip out intangibles, it's trading at book value, which is completely ridiculous considering the return on equity that this company has done for years upon years.

http://www.google.com/finance?q=LON%3ABEZ

Given recently acquisitions in the insurance domain, I actually value this company at a conservative £1.70. Have a look at historical records for other insurers. I will admit it's not as good as SUR, but it's still probably in the top 5 of all insurance companies in the entire world that I have encountered. Selling at book value, I think any investor will do quite well out of it, at £1.30, I reckon you'll get double digit returns in the near-term.

As usual, I appreciate any thoughts on this company.

I think Insurers are great companies to invest in - I've been in RSA for a very long time, have decent capital appreciation but I actually bought for the dividend yield (I only really buy for this, unless I'm short-term speculating), it have been immense really! I see that LON has an impressive 8% dividend...thanks for bringing this to the forum's attention, gonna do some DD and think about investing.

martyoo

Thanks Rask,

Very consistent and a decent yield. I like it already!

ROK ON

ionapaul wrote: »

I think Insurers are great companies to invest in - I've been in RSA for a very long time, have decent capital appreciation but I actually bought for the dividend yield (I only really buy for this, unless I'm short-term speculating), it have been immense really! I see that LON has an impressive 8% dividend...thanks for bringing this to the forum's attention, gonna do some DD and think about investing.

Completely disagree.

Amongst the worst performing sector continually during the past decade. Have lead the market on many downswings and lagged on the rallies.
Vast majority of insurance companies in Europe and the UK can't underwrite sensibly to save their lives. Despite the pullback of AIG there is IMHO way too much capacity across a lot of the industry. Continual price fighting in non-life. In life, most of the policies are sold on the back of investment oremises that only make sense in a secular bull market. Finally many of these companies have a woeful investment track record and are pretty impenetrable to understand from an accounts point of view (many have two different sets of accounts, 1 for the financial market under IFRS and a separet one for the insurance regulator under EV, MCEV or some other form of impenetrable gobbldigook). Best of luck if you understand this stuff, I doubt I ever will.

Another finally:) the sector has witnessed widespread dividend cuts over the past decade. I wouldnt even classify this sector as a decent trading sector. There are exceptions and this is a general opinion.

ionapaul

I guess you are dead on about being impenetrable from an accounts point of view, it is crazily difficult to understand!

I'd actually love to know more about the details of various insurers' investment records, will have to look into that.

deadduck

Raskolnikov wrote: »

By the way, I have discovered a company, another insurer, that's just pure quality. I feel that even with the recent run up in price that it's still undervalued. After you strip out intangibles, it's trading at book value, which is completely ridiculous considering the return on equity that this company has done for years upon years.

http://www.google.com/finance?q=LON%3ABEZ

Given recently acquisitions in the insurance domain, I actually value this company at a conservative £1.70. Have a look at historical records for other insurers. I will admit it's not as good as SUR, but it's still probably in the top 5 of all insurance companies in the entire world that I have encountered. Selling at book value, I think any investor will do quite well out of it, at £1.30, I reckon you'll get double digit returns in the near-term.

As usual, I appreciate any thoughts on this company.

i'm starting to look at investing some money, approx €1000, and have started looking at this company. however, one of the first things I saw was this:

http://www.stockmarketwire.com/article/4144462/Director-Deals-Beazley-PLC-BEZ.html

now i'm only starting to look at it, but this might raise some alarm bells. I know he still has over a million shares, but why would someone with an inside line sell off 600,000 shares?