Gator Capital Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A return of 6.94% was recorded by the fund for the fourth quarter of 2021, compared to its benchmarks, the S&P 500 Total Return Index that delivered an 11.03% return, and the S&P 1500 Financials Index that had a 4.77% gain for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Gator Capital Management, in its Q4 2021 investor letter, mentioned Genworth Financial, Inc. (NYSE: GNW) and discussed its stance on the firm. Founded in 1871, Genworth Financial, Inc. is a Richmond, Virginia-based insurance company with a $1.8 billion market capitalization, and is currently spearheaded by its CEO, Thomas Mcinerney. GNW delivered a -8.64% return since the beginning of the year, while its 12-month returns are up by 4.23%. The stock closed at $3.70 per share on March 11, 2022.
Here is what Gator Capital Management has to say about Genworth Financial, Inc. in its Q4 2021 investor letter:
“We own positions in both Enact Holdings and its parent company, Genworth Financial. Enact is one of six mortgage insurance companies. Mortgage insurance is purchased by borrowers to protect lenders if the borrower defaults on their mortgage. The government mortgage agencies (“GSEs”) require mortgage insurance when the borrower has a down payment of less than 20% of the home’s purchase price. Usually, first-time homeowners are the largest users of mortgage insurance since they often have the most difficult time accumulating enough savings for a 20% down payment. We believe the demand for mortgage insurance will be strong, but the mortgage insurance companies’ stocks are priced as though future earnings will not grow.
Here is our investment thesis on Genworth Financial:
Genworth Financial
We also own shares of Enact’s parent company Genworth Financial. We think Genworth is more attractive than Enact. Here is our investment thesis on Genworth:
1. Leveraged return on Enact – Genworth’s main asset is the 132 million shares of Enact it still holds. Genworth also has about $1 billion of net debt at its holding company, so it is a leveraged version of Enact. If Enact stock increases in value, Genworth should increase a greater percentage due to the leverage at Genworth’s holding company.
2. Two other assets held – Genworth has two other assets that we believe are not reflected in Genworth’s stock price. Currently, Genworth trades for approximately the value of its stake in Enact less its net debt. The two other assets Genworth owns are:
a. Tax-sharing arrangement – Genworth has a tax-sharing arrangement with its subsidiaries. Since Genworth has past losses, it does not pay federal income taxes. Regulators allow Genworth’s subsidiaries to send tax payments to the holding company for liabilities created by the subsidiaries’ current income. However, the holding company can retain these cash tax payments because it has the tax shield from past losses. This tax-sharing arrangement allows Genworth to get cash out of the subsidiaries without asking regulators to allow dividend payments. In 2021, Genworth received $375 million in tax-sharing payments from its subsidiaries. We conservatively estimate Genworth could receive $200 million per year for the next five years. This amount would equal $2 per share, which is significant considering Genworth’s stock is only priced at $4.
b. Life insurance subsidiary – Genworth also owns a life insurance subsidiary. The life insurance subsidiary is a large company on its own, but we assign zero value to this subsidiary because of potential losses in its long-term care insurance business. However, we observe that Genworth’s management team has done a very good job raising rates on its long-term care policies to counteract increasing policy costs. There is some possibility that 10 years from now, management’s actions could salvage some value from this subsidiary. If this subsidiary has any value, it could be so large that it would be meaningful to the stock price. For example, if the subsidiary is eventually worth half of its current $11 billion of book value (or $5.5 billion) then this subsidiary could be worth almost $11 per share. This potential scenario is far down the road, so currently we conservatively assign zero value to this asset in our valuation of Genworth…” (Click here to see the full text)
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Our calculations show that Genworth Financial, Inc. (NYSE: GNW) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. GNW was in 19 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 23 funds in the previous quarter. Genworth Financial, Inc. (NYSE: GNW) delivered a -10.19% return in the past 3 months.
In May 2021, we also shared another hedge fund’s views on GNW in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
