National General Holding Corp is ready for a bull run
The U.S. equity markets are close to the highs and many experts are calling for a correction.
That means, when looking for a Stock to invest in, we have to be extra careful. Looks for stable stocks with upside potential and smart management. Great company management will always be the best way to protect your investment.
National General Holdings Corp.(NGHC), an insurance company, run by a smart management team, working towards increasing share holder’s value is my favorite bet right now.
National General Holdings Corp., headquartered in New York City, is a specialty personal lines insurance holding company. The company traces its roots to 1939, has a financial strength rating of A- (excellent) from A.M. Best, and provides personal and commercial automobile, homeowners, umbrella, recreational vehicle, motorcycle, supplemental health, and other niche insurance products, according to the company website.
Let’s talk about the company from a fundamental standpoint…
- The company posted stellar results in the first quarter of 2016. Their total revenues increased by 50.1% to $776 million compared to the first quarter of 2015.
- Their net income for the quarter was $52.7 million compared to $41.7 million in Q1 2015. The diluted EPS was $0.49 per share, compared to $0.43 per share in Q1 of 2015.
- The fully diluted book value per share of the company as of 31 March 2016 was $12.34, a growth of 12.6% over 31 March 2015. At the current book value, the stock quotes at a Price/Book ratio of 1.7, which is attractive for a fast growing company like NGHC.
- Another important metric, the combined ratio was relatively flat at 91.3%, compared to 91.2 in Q1 2015. The Investopedia defines the combined ratio as “a measure of profitability used by an insurance company to indicate how well it is performing in its daily operations. The combined ratio is calculated by taking the sum of incurred losses and expenses and then dividing them by earned premium. The ratio is typically expressed as a percentage. A ratio below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims that it is receiving from premiums.”
- It delivered attractive Annualized operating return on average equity (ROE) of 16.3% for the first quarter 2016.
NGHC acquired QBE Lender-Placed insurance and Assurant Health in the last financial year. To me, a company that is making smart acquisitions shows an aggressive desire to grow. And an aggressive desire to grow means a potential for an aggressive return on my investment.
Continuing with their expansion plans, the company is in talks to complete purchases of Century National Insurance Company and Standard Mutual Insurance Company during the current financial year. The management believes that both the acquisitions will be strong revenue generators.
From a technical standpoint, the Stock is not in “perfect” position but it certainly has upside potential.
The stock rallying to 28-29 per share seems like a reasonable expectation when combining the technical and fundamental clues.
The long-term chart of NGHC shows the stock trading in a broad range of 17.43 on the lower side and 23.8 on the upper side, since September 2014. The stock’s in a bullish ascending wedge as shown in the chart.
A breakout from the ascending triangle pattern, above the levels of 22.63 will offer a good entry point to the investors from a purely technical standpoint, but you may also consider buying on a dip (if we get one) to get best value and max out gain potential.
The daily chart offers us a better opportunity to select our stop loss level and gives us a view of short-term trading patterns if any.
The 20 and 50 day exponential moving averages, which are currently bunched up together, will turn up when the stock breaks out of the ascending triangle and curve up into an uptrend. The RSI is in the positive territory and has not yet reached overbought levels.
Above the final resistance of 23.8, the stock enters into an uncharted territory and is likely to gain momentum until it reaches the highs of 30, which is the all-time high for the stock.
What if the stock breaks out of the triangle, but turns back immediately?
In order to protect our capital, we’ll keep the stop loss at 19.9 level, which is a tad below the recent low formed just before the results were released.
If the stock breaks down below the 19.9 levels, then the bullish ascending triangle pattern fails, which will likely bring the stock down to the support levels of 18 or 17.43.
It is difficult to find a stock on a strong growth path at reasonable valuations. There is a fine balance between growth, profitability and debt. National General Holding Corp maintains that perfect balance of attaining growth, without sacrificing their profitability and leveraging excessively.
The technicals of the stock also suggest that it is ready to start a new bull run. For me, there’s enough evidence here to begin buying shares.
Hope this was beneficial to you!