Thinking About Financial Stocks
Right now I do not expect to add any financial stocks to my model portfolio. As I explained in a previous post, I do not feel the need to invest in every S&P sector.
That does mean that I completely ignore these stocks. The list below is a ranking of some of the financial stocks that I have at least considered:
Brown & Brown - BRO - $59 - I love the insurance brokerage industry. There is no risk on the asset side. I know that when I had to buy E&O insurance for our mutual fund business, I relied completely on my broker to choose the best policy. If I could find a broker at say 12x EV/EBITDA I would be happy to own one. There are a dozen to choose from. At the right price I could own Marsh McLennan, Aon, or Willis Towers. If you have never looked at this industry, you should spend some time here.
Renaissance Re - RNR - $192 - At the right price I could own a reinsurance stock. RNR is my favorite, but there are others to choose from. This is a difficult industry to understand. You just have to find a management team you trust, and have some faith. This is the business that Warren Buffett invested in when he bought General Re.
FirstCash Financial - FCFS - $91 - At the right price I would love to invest in the pawn shop industry. FCFS is a great operator, but I am concerned about their Central American exposure.
Lincoln National - LNC - $33 - I want to learn more about the life insurance business. I still have my fears about the asset side of the balance sheet.
Jefferies Financial - JEF - $38 - A few value managers I trust own this stock. JEF does have a unique franchise in the financial markets. At 12x earnings, you could do worse.
Lazard - LAZ - $40 - If I had to buy a traditional investment banker, this would be my choice. They are cost cutters, and have a unique international franchise.
Victory Capital - VCTR - $38 - These guys have bought some interesting asset managers. The stock only sells at 7x earnings. If I were bullish on the general market, I would want to learn more.
Cullen Frost - CFR - $136 - If you pointed a gun at me, and asked me to choose a regional bank, CFR would be my choice. One of my fellow directors on the Prudent Bear Fund was the chief risk officer at CFR for many years. This is very conservative bank, that was the only Texas bank to survive the 1980’s collapse. I fear any exposure to commercial real estate, so I will avoid banks for some time.
MidWestOne - MOFG - $33 - There is a whole new world of small banks. If I could find one with very little commercial real estate, I would love to take a look. You can find some value here, but the risks are high. MOFG is heavily exposed to the agricultural economy in Iowa.
Allstate - ALL - $127 - Several value managers have chosen to invest in the personal insurance business. Again I worry about the asset side of the business.
Intercontinental Exchange - ICE - $105 - Value investor Murray Stahl is a big fan of the exchanges. I need to learn more about these companies.
White Mountain Insurance - WTM - $1482 - There is a group of small insurance companies that use their assets to become the next Berkshire Hathaway. Some value managers own these, but for me the risks are too high.
Money center banks - I just do not trust their reliance on the commercial paper markets for funding. Before you own these stocks you should understand what really happened in the 2008 crash. I am not sure the big banks will be bailed out a second time. There are better alternatives, why bother taking the risk?