Top picks 2013: MGIC Investment

Following the mortgage meltdown, this firm is now positioned for on ongoing turnaround.

By TheStockAdvisors Jan 2, 2013 11:28AM
Insurance NULL CorbisBy George Putnam, The Turnaround Letter

For  speculative investors, our top pick for 2013 is MGIC Investment (MTG), the leading non-governmental provider of mortgage insurance.

The company was battered by losses from the subprime mortgage debacle prior to 2008. Those losses are now receding. The company has raised additional capital and the new business that it is writing is very profitable.

MGIC recently settled a long-festering dispute with Freddie Mac, thereby allowing it to continue to insure Freddie Mac mortgages.

The budding recovery in the housing market helps MGIC in two ways:

  • First, the rise in home prices makes it less likely that homeowners with older policies from MGIC will default.
  • Second, an increase in home purchases provides MGIC the opportunity to write more new business at very profitable rates.
There is still some risk that MGIC's pre-2008 business will cause regulatory problems, but we believe that risk is small compared to the substantial gain potential in the stock as the housing sector continues to recover.

(In last year's Top Picks report, George Putnam was the top-performing advisor; his pick of OfficeMax rose 115%.)

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