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brewer12345 · 02-02-2006, 02:58 PM

Anyone interested in a beaten down dividend payer with a long track record of div increases should take a look at Commerce Group (CGI). This is the largest auto insurer in Masssachusetts. They make a ton of money and are operated in a very conservative manner. They rightly get marked down a bit due to MA's effed up regulatory system, but this is ridculous: trading at 1.35X book at a 52 week low and they just blew out consensus EPS (again). Could it drop further? Sure; its an equity. But its cheap and well run plus pays a nice dividend.

Disclosure: I own some of this.

Wizard · 02-02-2006, 03:06 PM

This is a broken stock. I am short this one:

http://stockcharts.com/def/servlet/SC.web?c=cgi

brewer12345 · 02-02-2006, 03:11 PM

I suspect you will be disappointed. Its not volatile enough to bother shorting, and in the long run they make enough money to buy back a ton of stock if they so choose.

Wizard · 02-02-2006, 03:25 PM

Seems you all ready made your mind up.

I knew I wasted my time chiming in.

Go buy it and good luck.

I made another 1.21% today.

unclemick · 02-02-2006, 03:34 PM

Keep those cards and letters coming folks - killed off, I hope 3 more DRIPs today - sent certificates to my VG Brokerage account. Found three I can try direct transfer tommorrow.

I love the ying and yang of this!

The Norwegian widow needs new shoes.

heh heh heh heh heh

HFWR · 02-02-2006, 03:38 PM

And a new brassiere! :P

yakers · 02-02-2006, 03:52 PM

Quote:

Originally Posted by unclemick2

- killed off, I hope 3 more DRIPs today - sent certificates to my VG Brokerage account. Found three I can try direct transfer tommorrow.

Seling the DRIPs, Oh no! Isn't that like burning the furniture to keep warm? Eating the seed corn? ..........

maddythebeagle · 02-02-2006, 04:33 PM

Quote:

Seling the DRIPs, Oh no! Isn't that like burning the furniture to keep warm? Eating the seed corn? ..........

I hope mick is just consolidating and not selling them off. Let's see, I know XOM was one. what others are going to the woodshed?

laurence · 02-02-2006, 04:40 PM

brewer, I'm listening. What do you think the chances of bk is?* I have happily waited on a stock that's gone down until I was in the black again, but to lose it all would make me sad.*

EDIT: withdrawing statement about bk.* Wow, I wasn't expecting it to be $50/share.* Even if the fundamentals don't support it, there is still a lot of irrationally motivated downside.* I will due my DD, though.

EDIT #2

Growth Est CGI Industry Sector S&P 500
Current Qtr. -12.4% 5.3% 2.5% 11.3%
Next Qtr. N/A 3.1% 7.3% 7.5%
This Year 9.7% 67.9% 16.0% 12.6%
Next Year -15.7% 7.2% 9.6% 9.5%

So they have a good price to book ratio, but this negative growth thing looks a little worrysome, what's your take on how they turn that around?

brewer12345 · 02-03-2006, 06:08 AM

Quote:

Originally Posted by Wizard

Seems you all ready made your mind up.

I knew I wasted my time chiming in.*

Go buy it and good luck.*

I made another 1.21% today.*

Actually, I am happy to hear what you have to say. Don't take your toys and go away.

I am just amazed that anyone would bother to short this company. The usual poster boy for a short is a company with something seriously wrong and an inflated valuation. Usually the stock and business are fairly volatile as well. I don't think any of these applies to this company. O/S short interest is something like 50k shares (tiny).

Are you short this name simply because of chartist stuff, or is there some other reason? For companies that trade cheap and don't have any life threatening problems, I tend to be willing to hold for a very long time (years to decades) so my considerations are usually based on valuation and what is going on with the business, not short term stock price movements.

brewer12345 · 02-03-2006, 06:26 AM

Quote:

Originally Posted by Laurence

brewer, I'm listening. What do you think the chances of bk is?* I have happily waited on a stock that's gone down until I was in the black again, but to lose it all would make me sad.*

EDIT: withdrawing statement about bk.* Wow, I wasn't expecting it to be $50/share.* Even if the fundamentals don't support it, there is still a lot of irrationally motivated downside.* I will due my DD, though.

EDIT #2

Growth Est* * * * * * CGI* * * * Industry* * * * * * Sector* * * * *S&P 500
Current Qtr.* * * * -12.4%* * * *5.3%* * * * * * * * *2.5%* * * * * *11.3%
Next Qtr.* * * * * * * * N/A* * * * * *3.1%* * * * * * * * 7.3%* * * * * * *7.5%
This Year* * * * * * * * 9.7%* * * *67.9%* * * * * * *16.0%* * * * * * 12.6%
Next Year* * * * * * -15.7%* * * * *7.2%* * * * * * * *9.6%* * * * * * * 9.5%

So they have a good price to book ratio, but this negative growth thing looks a little worrysome, what's your take on how they turn that around?

Laurence, go look at the last 5, 10, 20, 30 years of this company's history for earnings and book value growth.* This company is thinly-followed in the analyst community (meaning that there might be several analysts following it, but I doubt any of them pays much attention to this sleepy company).* They don't have earnings conference calls or analyst days, and a few years ago they were doing stuff like releasing blowout earnings at 5PM on a Friday (usually you do this when you arre announcing a disaster).

For financial institutions, growth is a double-edged sword.* Assuming they have or can get sufficient capital, banks, insurers, etc. can write LOTS of business any time they want, so it is pretty easy to show top-line growth.* The trick is that you don't find out for sure whether this was profitable growth until months or years latter, and in the meantime everything is based on estimates.* *If you are so inclined, it can be pretty easy to mislead yourself (and willing analysts, investors, etc.).* Since this has been the sourec of countless implosions in the financial institutions arena, I tend to prefer financials that are run by careful, sober management teams with a track record of conservatism and being good stewards of the shareholders' capital.* Someimes that means I miss out on a go-go growth story, but it also has protected me from some really ugly situations.

On Commerce: the big knock on this company is that the vast majority of their business is concentratedin Massachusetts.* MA has the highest insurance premiums in the country, possibly the fewest insurers to choose from, and the most benighted regulatory structure of any state.* MA is the only state I know of where the state actually sets the rates for auto insurance every year.* Insurers are also required to take all insureds that apply.* They can lay off the worst risks to a state-wide reinsurer, but they must pay their share of the losses from this entity.* Given this heavy-handed quasi-socialist regulatory environment, insurers have been bailing out of MA for over a decade.* Every time someone leaves, CGI has gained market share, and in some cases the companies leaving the state have actually paid (millions of dollars) CGI to take over their business.* CGI is now the dominant player in MA auto insurance with ~30% of the market.* They get around a lot of the problems in the market by making agent commissions contingent on getting good risks, and they paid ~$125 million in agent profit sharing in 2005 alone.

CGI is vulnerable to the shifting sands of MA insurance regulation, but have managed to thrive for decades despite this risk.* They have built a modest business outside of MA, but it is still small relative to the overall business.* There is a change at the top going on and I am hopeful for a more dynamic approach now that the fossilized outgoing CEO is retiring.

I also look at it this way:* This is a well capitalizd insurer that makes around $250 million a year in cash profits.* Market cap is currently $1.9 billion or so.* Do the math.* How many places can you get a free cash flow yield over 10% in a low risk business?

unclemick · 02-03-2006, 06:42 AM

Brewer

Checking my - male hormone, mad money - may yet enter a dog in this fight.

Meanwhile back to slowly getting out of DRIP stocks.

heh heh heh

brewer12345 · 02-03-2006, 07:43 AM

Damnit! Getting away from me before I can buy more this morning...

laurence · 02-03-2006, 10:27 AM

Thank you for the reply. Dang, I see what you mean, up 5 bucks/10% this mornign already! I'm going to monitor and read some more, if I feel brave I might pick up a couple hundred shares and see what happens. What's your target price?

brewer12345 · 02-03-2006, 10:30 AM

Quote:

Originally Posted by Laurence

Thank you for the reply.* Dang, I see what you mean, up 5 bucks/10% this mornign already!* I'm going to monitor and read some more, if I feel brave I might pick up a couple hundred shares and see what happens.* What's your target price?

To buy? 55 or less. With any luck, it will drift back down over time.

To sell? Haven't really thought about it. Maybe 75? Not really planning to sell in any case.

FWIW, I think that the new CEO may try to shake things up. High on my list would be a bump to the dividend of more than a few pennies. I think they could pay $2 a share annually without breaking a sweat.

wabmester · 02-03-2006, 12:59 PM

Holy crabs, brewers. How did you time that gap-up? You couldn't have picked a better example to demonstrate technical vs fundamental analysis.

brewer12345 · 02-03-2006, 01:11 PM

As I have admitted in the past, I don't "get" technical analysis. There appear to be people who run around making money on it, but it just sounds like made-up mumbo jumbo to me. Yet I can't help but feel I must be missing something.

Fundamentals I can at least understand and model. Not that its always a goldmine either...