Genworth Financial is a financial holding company, with its core business focused on selling insurance and additionally provides wealth management, investment, and financial solutions for individuals in the U.S. and around the World. The three main facets of the business are: Retirement and Protection, International, and U.S. Mortgage Insurance. See the full profile at http://finance.yahoo.com/q/pr?s=GNW+Profile. The company has been very profitable historically, but the black swan events of the U.S. housing crisis and an unprecedented amount of defaults on mortgage loans that the company had insured led to alot of bleeding for GNW shareholders the last few years. I have been following the stock for four years and I am beginning to see alot of value in the stock. I believe that GNW will make it out of this housing mess alive and that it is well positioned to profit from a recovery in housing. I strongly feel that long term investors buying more GNW shares on this temporary weakness in share price and peaking number of mortgage defaults will be rewarded in 2-3 years when the storm blows over.
GNW has been crushed over the past few years and has a high beta of 2.9 for all those momentum players out there. I think that housing bottoms in the next 12-15 months and a significant decline in U.S. and European mortgage defaults would be great news for GNW investors. Once the Mortgage insurance unit at GNW stabilizes and starts making money again, this will be the major catalyst and turning point for GNW stock to soar much higher.
From a deep value investor standpoint, currently GNW trades at $8.22 with a .24 Price to Book, .37 Price to Sales, and has a forward Dec 31, 2012 Price to Earnings of 6.5. Those are extremely cheap stock valuation numbers that greatly support my thesis for buying GNW shares for the long term. This stock could trade back to $24 a share and still be trading at only .75 book value. Wow!! Good luck to all of you Bulls…
GNW has rallied over 20% in the past 30 days. I think the party for GNW shareholders has just begun. Several financial stocks are rallying this week. Check out my post yesterday on Goldman Sachs here https://optionshoney.wordpress.com/2012/01/18/goldman-sachsgs-call-options-active-on-q42011-earnings-beat-by-tim-bolger/ . Any traders that bought GS call options on my previous note made lots of money overnight as GS continues to rally higher today. Bank of America and several other financial stocks are up big again today as well.
GNW reports earnings on Feb 2, 2012. Remember it is always a gamble to buy a stock before earnings releases, but I think GNW will beat Wall St. Analyst expectations and therefore, I want to own the stock and Call Options prior to the earnings release. If they beat the street, the stock could sail 10% higher on positive news, especially on any positive report on a decline in mortgage defaults for their Mortgage Insurance business. What is the Options Play on GNW?
Options Trade#1: If you are bullish on GNW going foward and would like to get long exposure to a continued rise in GNW shares, I would think about buying the Mar 16, 2012 9 and 10 strike Call Options. If GNW blows out earnings on Feb 2, 2012 these contracts will double or triple in value very quickly. Remember that if GNW has a poor earnings report, these contracts will likely lose 30 to 50% on a bad report. Alot depends on the EPS for the quarter and any forward looking comments by management that the housing mess could be nearing an end and any improvements in there mortgage insurance business. Attached are the Options Chains for this hypothetical trade courtesy of YahooFinance. http://finance.yahoo.com/q/op?s=GNW&m=2012-03 I like the March 9 strike call options at a price of .30 cents and the March 10 strike call options for .09 cents.
Options Trade #2: For a more conservative and longer term trade, I also like buying the GNW Jan 18, 2013 7.50 Call Options for 1.90 a contract. Good luck to all and stay tuned for more news on GNW and the financials. Trading involves inherent risks and please consult your financial advisor before buying or selling any stocks/options. Optionshoney.com disclaimer.