By. Tyler R. Martin
Sadly, I have not as of yet added Universal Insurance Holdings Inc. (NYSE: UVE) to my portfolio. However, I fully intend on doing so as soon as I am financially able. I have various reasons for this desire if you’d care to read.
Now, I have never been one to bow down to investment idols and declare that if Mr. Warren Buffet, or some such appointed demigod, believes it, then all contradicting evidence be damned. For example, I would very rarely recommend ETFs for those who want take an active role in their investments, but I must confess, Buffet’s proclivity for insurance companies deserves some observance. Insurance companies (in the case of UVE, property and casualty insurances), are generally solid investments. This stems from the necessity to maintain quality personal insurance in today’s litigious society and, in consequence of this, people have a great incentive to consistently pay premiums. Additionally, barring some kind of cataclysm (i.e. flooding, hurricane, etc.) where many customers are afflicted simultaneously, insurance companies payout on claims quite infrequently and in far smaller numbers, relative to the premiums they collect. This is beneficial due to what insurance companies are able to do with collected funds in the interim. With all of that free cash flow, insurance holding companies, such as Universal Insurance Holdings Inc. (NYSE: UVE), invest in publicly and privately traded securities and are able to benefit from the long term compound interest. In short, due to the nature of the business structure, insurance companies are excellent by-and-hold investments. As long as the companies you select maintain increasing earnings every year, a solid, growing dividend, you purchase shares while they are undervalued and hold these companies for long periods of time, you will compound at a substantial rate.
Now finally to zero in on Universal Insurance Holdings Inc. (NYSE: UVE). UVE is currently priced at 30.66 dollars per share, only .36 cents above its 52 week low and a full 20 dollars below its 52 week high. The price to earnings is a very attractive 9.37x earnings with an industry average standing at 18.71x earning. UVE’s dividend stands at a reasonable 2.10% with a three year growth rate of 9.26%. The EPS (earnings per share) has been consistently growing and deftly out pacing its peers. For example, last year’s earnings growth rate was 3.87%, with an insurance industry average standing at a dismal -8.85%. It revenue growth over the last year is similarly high paced for the industry, with UVE’s growth standing at 9.56% and the industry average a solid but markedly lower 5.48%. Now, to be fair, the UVE had had a rough 4th quarter for 2018, reporting a EPS of -19 cents; however, so did the sector as whole (many of which reporting far more bleak earnings). It should be apparent to the intelligent value investor that a 20 dollar drop in the price of a company, which has and will continue to outperform its sector, based almost entirely on one poor quarter, amounts to nothing more than a foolish overreaction of the market. And there, as always, is where the value lies.
Universal Insurance Holdings Inc. (NYSE: UVE) was a very solid buy even when it stood at its 52 week high. But better yet, it is currently trading at 30.66 dollars, in very near approximation to its 52 week low. Based on its outperformance within its industry, it is apparent to me that this opportunity must be capitalized on before the market corrects itself. At this moment, UVE is a MUST HAVE for every value investor’s portfolio. Get in while you still can….