Canadian Pacific Railway, Fresh Del Monte Produce, Old Republic International,
MGIC Investment and Arch Capital Group highlighted as Zacks Bull and Bear of
CHICAGO, Dec. 9, 2013
CHICAGO, Dec. 9, 2013 /PRNewswire/ -- Zacks Equity Research highlights
Canadian Pacific Railway (NYSE:CP-Free Report) as the Bull of the Day and
Fresh Del Monte Produce (NYSE:FDP-Free Report) as the Bear of the Day. In
addition, Zacks Equity Research provides analysis on the Old Republic
International Corp. (NYSE:ORI-Free Report), MGIC Investment Corp.
(NYSE:MTG-Free Report) and Arch Capital Group Ltd. (Nasdaq:ACGL-Free Report).
Here is a synopsis of all five stocks:
Bull of the Day:
With decent levels of growth both in the U.S. and abroad, many cyclical
sectors have rebounded quite strongly in 2013, with transports leading the way
in this regard. This shouldn't be too surprising to many investors, as this
important market segment has a history of leading stocks out of sluggish
market environments, and this recent rally has been no different.
However, as stocks have stabilized in recent sessions, some investors might be
looking to other sectors for the next round of gains. While this could be a
good strategy overall, investors may not want to give up on all the transports
just yet, as Canadian Pacific Railway (NYSE:CP-Free Report) may still be a
great pick going forward.
Canadian Pacific Railway operates a transcontinental railway across over
14,400 miles in North America. The system stretches from Vancouver in the
Pacific to Montreal in the East, and then down into the Midwest region of the
U.S. and key parts of the Northeastern United States as well.
This network and strong demand for the movement of goods has really helped CP
perform well so far in 2013. The stock has added more than 43% YTD, and has
soared by nearly 25% in the past three months alone, suggesting great
Bear of the Day:
While many stocks have soared so far in 2013, those in the commodity
production space have had a much rougher time. Investors have shunned
commodity producers by and large, as the focus has been on growth stocks, or
companies in more cyclical sectors instead.
Although much of the focus has been on the metal mining space, those in the
agricultural operations segment have also faced severe weakness as of late
too. In particular, one company that has been weak and may continue to face
resistance in this space is Fresh Del Monte Produce (NYSE:FDP-Free Report).
FDP produces tropical fruit such as bananas, pineapples, but also melons and
'deciduous' fruit as well. This includes grapes, apples, peaches, etc. giving
the firm a wide variety of production across a number of popular fruits.
While this might sound like a decent business to be in, FDP has definitely
struggled as of late. This has largely been due to rising costs, and with a
lack of any real competitive advantages, the pain may continue for Fresh Del
Monte Produce for quite some time.
3 Players Poised to Gain from PMI Recovery
After being hit hard by the subprime crisis, the U.S private mortgage
insurance (PMI) industry is gradually recovering with improving economy,
stabilizing housing market conditions in the U.S. and the material settling
down of the Euro-zone crisis.
The combination of these factors create a favorable operating environment for
private mortgage insurers who offer credit protection to lenders and mortgage
investors, thereby providing the much needed cushion to the mortgage market.
We expect further movement in overall macroeconomic conditions in 2014. During
the third quarter, GDP growth rate was 3.6% annualized, up from the initial
estimate of 2.8%. This when combined with 2.5% growth from the second quarter
of 2013 indicates that the economy has been growing at a better-than-expected
rate between 2% to 2.5%.
The recent employment reports have displayed a positive pattern and we expect
unemployment to remain at low levels in 2014. Consequently, we remain upbeat
regarding trends in mortgage delinquency and default rates and expect further
improvement through 2014.
Despite concerns that the Fed taper will soon come to an end, which will
eventually increase mortgage rates, the demand for private mortgage insurance
is expected to grow due to improving housing market trends.
The gradual improvement in the housing sector through 2013 is likely to boost
economic growth. We expect home values to be relatively up with some potential
for further improvement.
The PMI industry is also witnessing an indirect support from the government
with reduction in market share of its agency, The Federal Housing
Administration (FHA). While the third quarter numbers are not yet available,
private mortgage insurers have accounted for approximately 36% of U.S.
mortgage insurance written in the second quarter, their biggest quarterly
share of the market since 2008.
This is significantly lower than 77% of market share held by private insurers
in 2007, which leaves ample scope for expansion. We, therefore, expect private
mortgage insurers to regain lost market share over the next two to three
Following the financial crisis, the PMI industry has emerged in a better
shape. The implementation of improved underwriting guidelines and keeping a
tight scrutiny on loans originated (rather than earlier practice of relying on
loan originators), will enable the players to write high-performing,
profitable new business thus providing a valuable contribution to the broader
The current market structure thus presents a good opportunity for stronger
players, who have sturdy capital position and can enjoy regulatory
forbearance. Moreover, due to the exit of some firms during the housing market
crisis, supply is limited. Mortgage insurers with a differentiated financial
profile can therefore benefit from current market conditions.
Some of the companies under the Zacks coverage are well poised to gain from
the changing trends in the mortgage industry and Old Republic International
Corp. (NYSE:ORI-Free Report) with Zacks Rank #1 (Strong Buy) is one of them.
This company is planning to raise fresh funds from capital markets to restart
its mortgage insurance unit early next year, after mounting losses from the
collapse of the housing market pushed the firm out from mortgage insurance
Another player MGIC Investment Corp. (NYSE:MTG-Free Report) with a Zacks Rank
#2 (Buy) is also set to benefit from the improving industry fundamentals.
Decline in default led the company to report profit in the third quarter, its
second straight quarterly profit. The company reported its first quarterly
profit in about three years in the prior quarter, after posting annual losses
for the last six years. The company has also reported an increase in its
market share in the industry.
Another new entrant, Arch Capital Group Ltd. (Nasdaq:ACGL-Free Report), also
with a Zacks Rank #2, announced plans to enter the U.S. mortgage insurance
market earlier this year through the assets acquired from bankrupt insurer PMI
Group Inc. in a $300 million deal.
In conclusion, the role of these private mortgage players, among others, will
be a critical component of the current housing finance system.
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