I have been struggling to find ways to play the refinance "boom" outside of Bankrate.com (RATE) which we mentioned December 3rd [Dec 3: Mortgage Applications Spike to Record] While I believe purchases of homes (ex - foreclosures) will continue to disappoint bulls, along with the % of refinance applications actually being approved - 5%, 4.5% and potentially even lower interest rates that the government will eventually take us to are going to have some effects. Foreclosure are now close to 1 in 2 sales in the entire country so at 50%+ listed price some volume of sales should occur.
These names have been on our "watch list" ever since [Jan 11: Playbook for the Week] and today the first of the "Big 3" reported. Recent trends are enticing and with my belief that Obama & Co are going to throw the kitchen sink at attempts to get people to buy houses - this is a way to play that without counting on "new homes" as you would by buying a homebuilder. My thesis is that sales will begin to pick up in the housing market, because half of all sales are now "distressed". Bulls will misread this as a "return to good times" - it won't be. It will be fire sales... but I don't care; all I care about on this specific thesis is homes are changing hands - if they sell for $1 or $1 million is irrelevent to me.
First National Financial (FNF) is the largest of the three title insurers and recently acquired LandAmerica Financial Group which should give it about 45% of the space. Here is what they had to say today. (full report here) The headcount reduction is about a quarter of the LandAmerica workforce.
- Insurance provider Fidelity National Financial Inc. said Wednesday its fourth-quarter loss narrowed and it cut 1,500 jobs related to an acquisition. The company, which provides title-related services, said its quarterly loss narrowed to $1.7 million, or a penny per share, from a loss of $44.9 million, or 21 cents per share, a year earlier. Analysts polled by Thomson Reuters, on average, predicted a loss of 3 cents per share.
- Revenue fell 21 percent to $1.02 billion from $1.3 billion last year. Wall Street had expected revenue of $995.6 million.
- However, the company said open order counts more than doubled in December compared with November, and order counts in January improved significantly as well. (that's what the stock was "telling us") The company said the rebound in order counts and the acquisition will likely boost results in 2009.
- Absolute total open order counts more than doubled in December versus their November level, with per day open orders of 9,300 increasing by approximately 65 percent. January open order counts improved further from the significant December increase, as we opened approximately 14,200 orders per day in the month of January, more than a fifty percent increase over December.
- Jacksonville, Fla.-based Fidelity National said it would acquire LandAmerica Financial Group Inc. last year, but that company filed for bankruptcy protection in late November. Instead, it bought LandAmerica's Commonwealth Land Title, Lawyers Title and Unit Capital Title units for about $298 million in a deal that closed in December. Wednesday, Fidelity National said in January it cut 1,500 of the 5,500 staffers and closed 125 offices it inherited from the transaction in an effort to cut costs.
Technically we can see the stock has held up well during this recent downturn the past month, and bulls are heartened by today's news. I've had buy limit orders multiple times but I've pulled them back at the last minute because I was not 100% sure of the thesis here. I also generally like to watch how a stock trades for a few weeks before pulling the trigger. The data we saw today makes me more solid in my conviction (I've never owned of these stocks before so hence my trepidation) - so now I'll be looking to buy during the next period of market duress.
Peers Stewart Information Services (STC) and First America (FAF) are up in sympathy.
Long Ocwen Financial in fund; no personal position
