Genworth Finl Inc (NYSE:GNW)

I have been watching this race higher for the past 5 days, patiently waiting for any down day so I could add this to Caps. Of course, as soon as I actually have a bull thesis for a stock, it runs away from me. This is the 9th or 10th time I have put a “thumb” on this stock, and all but one have been successful. I should NEVER have taken my previous down thumb off, but I got scared I was missing something big on the bull thesis so took an accuracy hit to avoid a big points loss. And Boy, was I wrong. The red thumb thesis would have paid out big time!! At first glance, this seems to be about the worst stock possible to put a green thumb. Let’s go through the bad:

- Ceased selling Life insurance and Annuities.
- Consistently laying off staff. Bleeding talent left and right.
- Turnover of Executive staff.
- Consistently correcting their reserving profile (This is a BIG red flag for an insurer). One timers seem to be “all the timers.”
- Bleeding money in LTC division.
- Consistently unprofitable in GAAP and STAT set of books.
- Ratings downgrades from every major agency.
- Very heavy debt load.
- Seems like they are being constrained from a capital perspective.

And yet I have bought some shares in real life. Have I lost my mind? Yeah, I probably have. Yet I think this is very close to being a “special situation” investment. I broke this company a part and it seems to me the pieces are worth way more than the whole. I did a comparison to other mortgage insurance companies and I think the value here is in the MI business. I think they have been pretty honest they are attempting to set the company up so that it can be broken up (if you listen to the conference calls, this is about all they talk about). They have had some large transactions recently that make me think this next year will make for an interesting time for this insurance company.

I think this is worth $6 a share when everything is said and done. This is EXTREMELY risky for an insurance company so please be careful if you are following me in Caps, or in real life. Please be sure to do your own research and don’t rely on me. I do very well on red thumbs, but green thumbs have not been my friend for the past few years. :-)