First of all, I have to warn anyone reading this that I don’t recommend you go out and try this. Rather, just because I think it’s a good idea, I am writing this just for my own records and also just putting my thoughts out there.
Like I said in the previous post about the focus changing a bit on the blog these days, I’m writing today about a relatively risky bet I made today in the stock market. I decided to use most of my funds to buy a stock that’s been beaten down to less than a dollar in the stock market. Typically, you would think that there’s solid reason why the stock’s been beaten down, but when I look at all the financials and the history behind the company along with their cash position and honestly how beaten down the stock has been, it’s basically incredible.
The company is Genworth Financial (GNW). It’s a company that is being hit by the mortgage crisis, but it also has a large business in Life Insurance which isn’t going away. The market cap on the company has been reduced down to a little less than 500 million dollars. However, they’re in the process of buying a company with a billion in assets. They are going to probably get billions from the Government’s TARP program. They earn over $10 billion in revenue annually. How can they be worth less than 500 million dollars?
OK, so they reported poor earnings this past quarter. They lost about 200 million dollars. Come on… Yah, it was bad news and they are connected to the mortgage business in terms of insurance, but from $2.3 billion in revenue, they ONLY lost 200 million dollars. They’ve made money every year up until now. Their total cash is between $3 to 5 billion in cash despite the loss this past quarter. Yes, there are negatives and this past quarter was not their best, but if you buy in now when the stock is trading at close to a dollar, can you imagine if it even recovers part of their past value to reach even a 1/4 of their highs over the year? They were as high as 28…so if it even gets back to $4 or 5, you have quadrupled your investments and if you see the potential I see, it could literally be possibly a 10 bagger at least. Who knows? It’s definitely very speculative, but I’ve decided to throw the savings at it to give it a try.