New stock recommendation
I'm recommending QNTA at $2.71.
QNTA is very similar to a play I made last year called PXRE, which did very well. QNTA is trading at an even lower valuation than PXRE was. It is trading just around 0.5x book value.
QNTA is an insurance company that had a lot of exposure to Katrina. Most of the operation is now being run off. Run off is when they are not writing new insurance, but just winding down their positions. What happens in run off is that they own bonds and then have liabilities associated with their contracts for insurance. They pay what is needed on these insurance contacts (losses) and take it out of their bond holdings. The hope is that they have correctly estimated the losses and that therefore their book value stays as stated. If the losses are greater, then they can eat through their bonds (and therefore book value) more than they thought.
The same part of their operation that remains is expanding rapidly.
They are also tendering their outstanding preferreds shares. That indicates to me that they think they have enough bonds/cash to pay these and still be able to meet their insurance loss needs over the long term. That is a big positive, especially for the preferreds, which yield over 10% a face value and are trading at a discount to that. I highly recommend the preferreds, QNTAP.
I'm not sure what their ongoing hurricane exposure is for future hurricanes, since they are winding down their operations. I have enough plays (Nat Gas: CMZ, DVN) that would tremendously benefit from a new hurricane, so I feel I can take this risk. There is also a shareholder lawsuit, which might pose some risk.
A value guy named Klarman whose funds have been returning 20% in spite of his being 50% in cash bought a lot of QNTA at a slightly higher price.
Despite the risks, I really like this value play. It's usually good if you can buy at a lower price than Klarman!
QNTA is very similar to a play I made last year called PXRE, which did very well. QNTA is trading at an even lower valuation than PXRE was. It is trading just around 0.5x book value.
QNTA is an insurance company that had a lot of exposure to Katrina. Most of the operation is now being run off. Run off is when they are not writing new insurance, but just winding down their positions. What happens in run off is that they own bonds and then have liabilities associated with their contracts for insurance. They pay what is needed on these insurance contacts (losses) and take it out of their bond holdings. The hope is that they have correctly estimated the losses and that therefore their book value stays as stated. If the losses are greater, then they can eat through their bonds (and therefore book value) more than they thought.
The same part of their operation that remains is expanding rapidly.
They are also tendering their outstanding preferreds shares. That indicates to me that they think they have enough bonds/cash to pay these and still be able to meet their insurance loss needs over the long term. That is a big positive, especially for the preferreds, which yield over 10% a face value and are trading at a discount to that. I highly recommend the preferreds, QNTAP.
I'm not sure what their ongoing hurricane exposure is for future hurricanes, since they are winding down their operations. I have enough plays (Nat Gas: CMZ, DVN) that would tremendously benefit from a new hurricane, so I feel I can take this risk. There is also a shareholder lawsuit, which might pose some risk.
A value guy named Klarman whose funds have been returning 20% in spite of his being 50% in cash bought a lot of QNTA at a slightly higher price.
Despite the risks, I really like this value play. It's usually good if you can buy at a lower price than Klarman!
posted by Charlie at
3:31 PM
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