Personal line insurance represents the best short-term investment opportunity among insurance subsectors, according to Meyer Shields, a Stifel Nicolaus analyst. Shields attributes this to the more comprehensive data collected by personal line insurers in comparison to industry counterparts.
“On the personal line side, the difference is having much more data,” Shields said. “If the uncertainty is less, then the propensity to overestimate profitability is less, and therefore we see more precise pricing.”
Better pricing means more stable and predicable earnings for the personal line group.
In addition, because the largest personal line companies control more of the market than the largest commercial insurers, personal lines have greater economies of scale.
“On top of that, State Farm, which is the biggest personal insurer in the country, has been producing relatively poor results for the past couple of years,” Shields said. “And whenever you’ve got your biggest competitor needing to raise rates, this would be good news in general.”
Edward Ferris and Justin O’Brien recently published a paper for the Conference Board (members only) entitled, Examining the Impact of SEC Guidance Changes on CEO Succession Planning. The paper is a must read for anyone interested in CEO succession and its implications for corporate governance and corporate performance. According to the report as a result of the recent change by the SEC,
… regulators have reframed CEO succession as a risk management issue and placed its responsibility firmly in the boardroom. Succession planning responsibilities are redefined as “a key board function” and “a significant policy (and governance) issue … so that a company is not adversely affected by a vacancy in leadership.”
… the implications seem clear: boards will have to set more specific standards and requirements for CEO succession, take responsibility for results, and exercise discernable independence in the process.
Against this backdrop, the report seeks to answer three questions:
• What is the likely impact of this policy reversal?
• How will it practically affect the board?
• What should shareholders know about CEO succession plans, and why?
I highly recommend anyone interested in the succession issue read the paper. If you are not a member of the Conference Board, you might want to contact one of the authors, Edward Ferris, at the Hedge Fund Solutions Research Center. His email is eferris@hedgerelations.com.
With approximately 20 demutualized thrift deals underway in the regional banking sector — and the majority of these in the Northeast — conversion activity among the nation’s smaller banks has reached its highest point since the 1990s, Stifel Nicolaus Analyst Laurie Hunsicker says.
“To the extent that a mutual bank is considering any sort of growth opportunities, the attractiveness of stock as a currency is very important, and obviously that’s not an option if a bank decides to remain mutual,” said Hunsicker, who considers now to be a very attractive time for mutual banks to unlock value and raise capital.
“Not only are valuations right, but also where we are with respect to the M&A cycle starting to come back into vogue — or frankly even for those mutuals that want to go out and bid on the FDIC deals — I think having extra cash around certainly helps,” she added.
According to Hunsicker, conversion banks present attractive investment opportunities to investors, as these banks tend to have conservatively managed balance sheets, including low non-performing loans, high credit quality and excess capital.
“Most management teams are aware of the playbook in terms of how to return it back to shareholders via buybacks, dividends and select growth opportunities,” Hunsicker said. “And certainly many of the bank execs are very incentivized and see themselves per the conversion template as very large owners.”
In his exclusive interview with The Wall Street Transcript, MetLife Chief Investment Officer Steve Kandarian says commercial real estate valuations have reached their bottom, with early signs of improving leasing activity and hotel occupations already becoming apparent.
“We believe that commercial real estate valuations have bottomed out, with an average peak-to-trough decline of about 40%,” said Kandarian, who first called the real estate bubble and reduced MetLife’s exposure to risky real estate sectors in 2005, at the same time reducing the loan-to-value ratio in the company’s commercial mortgage portfolio.
“The loan-to-value ratio of our portfolio increased slightly in the first quarter to 69%, based on a rolling four-quarter valuation process. Importantly, though, only 2% of our portfolio has a loan-to-value ratio greater than 80%, and a debt service coverage ratio of less than 1.0 times,” Kandarian said.
The CIO projects a loss of 2% in MetLife’s commercial mortgage portfolio over the next several years and predicts any delinquencies incurred to be manageable.
“We focus on A-quality properties in the prime U.S. markets. We rarely do things like construction loans and loans on raw land, which tend to be the sectors that are hit the hardest when a downturn occurs,” explained Kandarian, whose department underwrites its own commercial mortgages.
“We’re a long-term investor in this sector. We’ve been at this for many decades, and we have offices across the United States that are dedicated to understanding their local markets, and conducting extensive due diligence and very stringent underwriting.”
Nokia NOK1V (Finland), the world’s largest maker of mobile phones, has for sometime now been lagging the big players in smartphones. Nokia’s Management has seemed to have been asleep at the wheel while Apple, RIM, even Motorola and Google have leapfrogged the firm with regard to smartphones. Finally after much consternation by investors and analysts, the firm just announced the appointment of Anssi Vanjoki, a longtime executive at the firm, and the company’s current marketing chief to serve as the new smartphone chief. The announcement along with other management related changes, som
e of which have occurred over the last year, continue to put the firm in a spotlight they would much rather avoid. 
Nokia needs to get a fire under its design and production capabilities to compete with the other big players eating the firm’s lunch. The latest changes are expected to go into effect by July 1. Keep a close eye on Mr. Vanjoki as she takes on a truly challenging task that is vital to Nokia’s continued success.
More:
US Cellular USM (NYSE), the wireless voice and data service provider, announced the selection of Mary Dillon to be the fir
m’s new president and CEO. Ms. Dillon will succeed John Rooney who announced his planned retirement back in February. Ms. Dillon has been the EVP and Global Chief Marketing Officer of McDonalds since 2005. Her selection appears to be a terrific choice for CEO. She brings to the table the type of executive needed to help US Cellular compete in its market. She has both marketing and operational expertise. Ms. Dillon will take over the reigns of the firm on June 1. She faces real challenges to the company’s business but she has the skills to help the firm meet those challenges.
Rooney’s announcement back in February that he would be retiring raised concerns for the company. He was instrumental in building the firm from a small company that collected roaming fees as its key source of revenue into a powerful regional carrier. Keep a close eye on the transition and the business moves Dillon makes after she takes over the company.
While many analysts are divided over whether the freight rebound that began in 2009 will continue as a linear expansion or fizzle out during 2010, Stifel Nicolaus Analyst John Larkin is placing his bets on the latter.
“Our view is that there are a number of one-time items that are making things a little bit better than they otherwise would be. Those items include stimulus programs, such as Cash for Clunkers; the $8,000 first-time homebuyer credit; the discount rate being close to zero; all of the liquidity that the Fed has pumped into the marketplace; the $800 billion stimulus program, etc.; all of which propped the economy up,” said Larkin, noting that while transport stocks are performing better, volumes are still 10%-15% below their peak.
“As we get out into the second half of 2010, and as we withdraw some of the stimulus – and as people begin to realize that the unemployment rate is still hovering in close to 10%, and begin to realize that there are tax increases embedded in the health care reform law, and begin to realize that the Bush tax cuts are about to expire – it’s not clear to me that we’re going to have a straight shot up economically,” he added.
Larkin favors railroad players CSX (CSX) and Norfolk Southern (NSC), as well asset-light, logistics companies Landstar (LSTR), C.H. Robinson (CHRW) and Forward Air (FWRD), although he finds it difficult to justify a “buy” rating on the last three.
“There is a difference between companies we like as companies, and companies that we think are undervalued, because we like virtually all the companies in the space. Unfortunately, the sell side has been so promotional of how wonderful everything is going to be going forward that these stocks are at pretty high valuations,” he said. “We would like to recommend them, but at these prices we are going to try and wait for a better entry point.”
As Americans debate the culpability of Big Oil in the Gulf of Mexico spill that took place two weeks ago — and continues to gush crude oil into Gulf Coast waters — one industry shows promising growth trends and potential solutions to U.S. oil dependency — alternative energy.
“One of the [growth] trends is the technological evolution of alternative energy technologies. This can include more efficient solar cells, more scalable next-generation wind turbines and, further down the road, things like electrical vehicles and so on,” said Pavel Molchanov, an analyst who covers the alternative energy industry for Raymond James & Associates, Inc.
“Certainly as technology improves, these products come down the cost curve. By definition, they are becoming more cost competitive relative to the conventional types of energy, and that presents opportunities to investors. In other words, as alternatives enter the mainstream, the growth curve naturally will improve,” he added.
Molchanov’s favorite clean-technology stock picks include American Superconductor (AMSC), a wind play that offers exposure to China’s growing wind market and turbine producers, and Trina (TSL), a solar company that has maintained high margins and is poised to increase market share significantly this year.
Amgen AMGN (NASDAQ), the world’s largest biotechnology company, announced the promotion of Robert Bradway, the firm’s CFO, to President and Chief Operations Officer. Bradway’s promotion comes at the same time it was announced that George Morrow, the firm’s highly regarded EVP of global commercial operations, would retire as of January 31, 2011. Amgen is currently awaiting a hoped-for approval from the FDA for its potential blockbuster osteoporosis drug denosumab. If the drug gets approved, Morrow would have been instrumental in the drug’s promotion and sal
e worldwide had his retirement not been announced. That new responsibility for sheparding the drug will now pass to Bradway.Bradway’s promotion indicates he is being groomed for the CEO position held by Kevin Sharer. Sharerwho is currently 62, is expected to retire upon his 65th birthday. All eyes should keep a close eye on Bradway. A Reuters article raised the specter that Amgen is moving more and more away from research and development towards acquisitions. The article pointed to Bradway’s promotion as another indicator of this growing trend.
Geoff Colvin, senior editor at large for Fortune, wrote a thought provoking piece entitled, The real outrage is how CEOs are paid, not how much. Colvin looked at CEO compensation from a different angle than is typically viewed with regard to today’s stratospheric CEO salaries. He was not very concerned about the high salaries but rather in the often wrong- headed approach to executive salaries particularly when it came to CEOs. If you are interested in executive compensation and its impact on stock and corporate performance Colvin’s piece is a must read.
