MTG

Publicly traded companies mentioned herein: Arch Capital Group Ltd (ACGL), Black Knight Inc (BKI), Essent Group Ltd (ESNT), Genworth Financial Inc (GNW), Home Depot Inc/The (HD), Lowe’s Cos Inc (LOW), MGIC Investment Group (MTG), NMI Holdings Inc (NMIH), Radian Group Inc (RDN), Rocket Cos Inc (RKT), Wells Fargo & Co (WFC)

Highlights

The presenter is bullish on housing, an asset class that has performed well since the initial COVID-19 sell-off in Q1. Yet, he believes that for such a large asset class, it is difficult for investors to achieve simple exposure to housing; he notes that home builders have opaque accounting practices, lumber, labor, and land often add complexity to related trades, building products have their own raw materials cycles, Home Depot (HD) and Lowe’s (LOW) are subject to retail dynamics, large mortgage banks (e.g., WFC) have significant non-housing exposure, and mortgage originators (e.g., RKT) are heavily influenced by the rate-dependent refinance cycle to drive volumes. He identifies mortgage insurers MGIC Investment Group (MTG) and Radian Group Inc (RDN) as companies with pure-play exposure to housing. Both stocks are down 20% – 25% YTD, and the presenter is bullish on MTG. At an ~$11 share price, MTG trades at 5.37x his 2022 earnings estimate, which is a significant discount to the 9x – 10x multiple mortgage insurers have historically traded at. Based on a healthy housing and mortgage insurance market, the presenter anticipates MTG beating the Street’s expectations for both revenue and earnings on a quarterly basis, which should cause the Street to raise 2021 and 2022 estimates and drive multiple expansion.