Back-office financial service providers and other niche financial stocks have joined regional banks as a trendy way to play the financial sector. As well as being a prime example of this trend, today’s recommendation is also yet another play on the U.S. housing market (the last one, a paint company, was in Friday’s Daily Alert). Here’s the new recommendation, from Upside’s Richard Moroney. It’s followed by a sell alert from The Prudent Speculator.
“First American Financial (FAF) is riding the rebound in home-mortgage refinancing. The company, a leading provider of title insurance, saw June-quarter earnings per-share more than double on 18% revenue growth. Profit estimates are on the rise, reflecting strong results, an improved outlook for home sales, and robust refinancing activity. For 2012, the per-share consensus is $1.90, up from $1.35 three months ago and above the $0.73 earned in 2011. Shares have rallied 77% this year but upside remains, as profit estimates could prove conservative. A strong market position (estimated 27% of U.S. title-insurance market), combined with improved expense controls and operating efficiency should sustain growth. The stock scores an 86 or higher in three of the six Quadrix categories. First American, with an Overall score of 97, is being initiated as a Best Buy.”
- Richard J. Moroney, Upside, October 1, 2012