Similar to Genworth Financial Inc (NYSE:GNW) above and Radian Group Inc (NYSE:RDN) below, MGIC Investment Corp. (NYSE:MTG) raised much needed-capital in March 2013 in order to survive. The company issued $350 million of convertible debt that is payable in 2020, and 135 million shares of stock were sold at $5.15 per share. All in all, MGIC raised more than $1 billion in order to pay off existing liabilities.
Following the news, analysts at Barclays raised MGIC to “overweight” with a new $8 price target based on reduced risk.
MGIC Investment reports Q1 2013 earnings before the market open on Tuesday, April 30.
Radian Group
Radian operates in the mortgage insurance business similar to MGIC, but the company also has a financial guaranty division which insures municipal bonds and other credit instruments.
Shares of Radian traded above $60/share in May 2007 before the housing bubble and consumer credit began to unwind. Now may be the right time to come back to RDN given ample evidence of a recovering housing market.However, Radian remains saddled with debt and the company would be prone to relapse if it’s customer base becomes unable to pay their obligations once more.
The financially-strapped Radian improved its financial position in February 2013 by issuing new long-term debt and common equity, both of which were bet by strong demand–a sign of investor confidence. The company issued $200 million of convertible senior notes that are due in 2019. Goldman Sachs and Morgan Stanley assisted Radian with the transaction.
In addition to the debt offering, Radian Group issued 34 million new shares of common stock, diluting existing equity holders. The marketplace absorbed the $8.00/share offering and Radian is currently trading above $11, a gain of nearly 40% in less than 3 months time.
Paulson recently stated in a note to clients that he believes Radian can hit $20 per share by 2015. Based on my experience with market behavior, I think the stock can get there sooner. Analysts at Barclays assigned Radian with a $14 price target earlier in March.
Radian is scheduled to release Q1 2013 earnings before the market open on Wednesday, May 1.
Foolish Bottom Line
Genworth Financial Inc (NYSE:GNW), MGIC Investment, and Radian Group have consistent similarities, which is likely why John Paulson is interested in owning all three stocks.
Each company emerged from the financial crisis in a debilitated position with heavy bruises, however it appears that improved financial positioning and a business resurgence warrants further upside in all three names. If readers wished they could go back in time and purchase Bank of America Corp (NYSE:BAC) at $4 and Citigroup Inc. (NYSE:C) at $25 in March 2009, then maybe now is the right time to consider Genworth, MGIC, and Radian.
Furthermore, insiders have been scooping up MGIC and Radian in recent weeks, giving further credence to Paulson’s bullish case. I own shares of Genworth Financial Inc (NYSE:GNW) in my individual account and shares of Genworth and MGIC in client managed accounts.
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The article Billionaire John Paulson Sees “Considerable Upside” in 3 Stocks originally appeared on Fool.com and is written by John Macris.
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