Genworth Financial Inc (GNW) Is Cheap According to Ben Graham

Why does a company like Genworth have over 150% of upside from its current price to its Graham valuation? One reason could be its unprofitable mortgage insurance business mentioned above. Though the combined domestic and international mortgage insurance segments have generated $10.7 billion in revenues since 2008, they have resulted in a loss of $60 million during the same time frame. The U.S. mortgage business has been especially ugly, responsible for nearly $2 billion in losses alone since 2008.

It is easy to see why an announcement to separate out its mortgage business back in January led to a 14% jump the same day. If this divestiture happens, it won’t be completely smooth sailing for the company in the short term. The international mortgage insurance business is one of the most profitable parts of its current business, so the loss of revenue will be felt almost immediately. That said, the cost-savings from jettisoning the currently underperforming domestic mortgage insurance business should help bridge the gap and allow Genworth to focus on life insurance, its core competency.

Though Genworth Financial Inc (NYSE:GNW) is the cheapest of the companies on the list, a couple of others could be attractive given their current valuations. As its name implies, Reinsurance Group of America is primarily focused on reinsurance, or the insurance purchased by insurance companies to mitigate risk in their insurance portfolio. It is a favorite of our CAPS community, and its recent poor performance could have been driven by poor results from the third quarter last year.

Accountability time
A stock’s valuation, regardless of the method used, only tells part of the story when evaluating a company. However, by going beyond its Graham number valuation, it is easy to see why Genworth Financial Inc (NYSE:GNW) might appear so “cheap” at its current price. With plenty of room to grow into its current Graham valuation, as well as plans to streamline its business to focus on its core competencies, I think Genworth Financial should continue to beat the market.

The article Genworth Financial Is Cheap According to Ben Graham originally appeared on Fool.com and is written by Robert Eberhard.

Fool contributor Robert Eberhard has no position in any stocks mentioned. The Motley Fool recommends American International Group. The Motley Fool owns shares of American International Group and has the following options: Long Jan 2014 $25 Calls on American International Group.

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