Stock of the Week

What if I told you there’s a stock that barely flinches when markets drop?

While most stocks fell in 2022, this $4.6 billion insurance giant climbed steadily. Even more intriguing: it shows the lowest volatility I’ve seen in years, paired with one of the highest Sortino ratios in the market.

Most investors are overlooking this company because it’s “just insurance.” But my proprietary GVI system has spotted something remarkable – a combination of metrics I rarely see.

And the company is buying back its own shares, a strategy that typically signals management’s confidence in future growth. Yet the market hasn’t caught on.

All the details are in my latest video.

This the kind of research my clients pay thousands for… but you get it for FREE as a Total Wealth subscriber.

TRANSCRIPT

Hi, everyone. It’s the Stock of the Week, as part of my Dealmaker’s Diary.

White Mountains

White Mountains Majesty (WMI).

You’re going to think I’m insane when I tell you about this. Well, actually, sometimes by looking in places others won’t, you find a potential gold mine. An insurance company, Alpesh, with Los Angeles burning down? Well, there’s a reason for it, and it isn’t LA-connected, in fact.

Their insurance and financial services are more broadly focused. It’s a pretty big company, $4.6 billion. While not big by insurance standards, it is big in absolute terms.

Here’s what’s interesting about the company: First, it has the ability to repurchase its own shares. Warren Buffett loves that. Companies with substantial capital, like Apple and other large ones, often do this.

When companies buy back and cancel their own stocks, it boosts the stock price because fewer shares are available. This isn’t ideal, which is why it’s in Dealmaker’s Diary and not part of my GVI Investor, which has more stringent requirements. Still, this is good and interesting.

On my proprietary Growth-Value-Income rating system, I normally want a 7, 8, 9, or 10 to meet the minimum criteria. This is a 4. But as I said, it’s higher risk and in the Dealmaker’s Diary – it’s on the radar, as it were.

What caught my eye was next to no volatility. Well, it’s insurance; they tend to be lower volatility stocks.

It has an amazing Sortino ratio, meaning the returns you’re getting for the risk you’re taking are pretty low, just like the insurance industry.

CROCI is slightly below what I’d like from Goldman Sachs Wealth Management. Normally, over 10% means it’s in the top 25% of companies, but this isn’t too bad.

I don’t think I’ve seen a Sortino ratio this high or volatility this low on a company for a long time. These two combinations caught my eye.

Look at those insurance premiums.

What’s notable is that when the stock market dropped and virtually every stock fell, this one kept rising. Was it just because the market was declining? No, because the following year was flat but didn’t drop, and the year after that went up. If it were to continue that general trend, that’s promising.

I know it’s a bit overbought when I look at the MACD, the moving average of the price. But it’s been at those elevated levels during this entire phase and still seems to be rising.

You can’t rely on discounted cash flow for everything. It’s not one of our core elements – it’s just nice to have. Sometimes calculations can be unusual with insurance companies, which is why we don’t always use discounted cash flow. So don’t worry about that too much.

I don’t think its fair value is 10% of where it is, by any means. But you can see why we have stringent criteria for GVI Investor. Nevertheless, in its field, while this might end up being an unloved area, it shows good robustness and resilience and shouldn’t see any drop below that upward trend.

So you’ve got quite a good risk-to-reward profile. Thank you very much. I hope you found my exuberance entertaining and the content informative and educational – all the things I strive to be.

Thank you all very much indeed.

— Alpesh Patel

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Source: Total Wealth Research