An Insurer's Dividend

Investment manager Ed Wachenheim III believes the stock market has become fully priced. So he's looking for low-risk stocks with special features that should permit them to rise sharply even if the overall market doesn't. And if there's a buyout angle thrown in, that would be a big bonus, says Wachenheim, chairman and CEO of Greenhaven Associates in Purchase, N.Y.

Here's one that Wachenheim thinks fits the bill: Allmerica Property & Casualty. It primarily sells auto and homeowner policies and currently trades at 59 a share on the Big Board. "The company is well-positioned in its markets," says Wachenheim, who sees earnings jumping to $7.25 a share from last year's $6.48--in spite of claims for huge damages caused by Hurricane Andrew in Florida.

But the best incentive, he says, is the possibility of the company being bought out by State Mutual Life Assurance, which owns 57% of Allmerica. He believes there have been serious discussions between top people at both companies on a possible merger or direct acquisition by State Mutual.

An acquisition price of 1.2 to 1.3 times book value, which Wachenheim figures would be "ultraconservative," would mean Allmerica is worth $75 to $80 a share. But if there's no buyout, Allmerica would still be "an exciting investment," insists Wachenheim, given the company's strong earnings power and a projected book value of $62 a share by 1994.

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