MGIC Investment Corp. (MTG), Radian Group Inc (RDN): Why Do Institutions Love These Stocks?

Radian Group Inc (NYSE:RDN) anticipates that is mortgage insurance unit will turn profitable after years of losses. Its mortgage insurance business unit reported a 69% jump in the mortgage insurance business earnings year-over-year. Besides, Radian raised around $689 million after selling stock and senior notes in February. The cash helped replenish its capital base.

Competition

Radian Group Inc (NYSE:RDN) and MGIC Investment Corp. (NYSE:MTG) compete with Genworth Financial Inc (NYSE:GNW) to insure mortgages. Genworth has shown some improvement in results as its mortgage insurance unit turned profitable after accumulating losses since 2007. The company’s mortgage insurance unit contributed around 68% of the first quarter’s operating income. Its mortgage insurance unit’s US and Australia operations were the reason behind the reversal of losses. Around 45% of the entire mortgage insurance income came in from Australia. Therefore, growth in this segment is of importance for the company. Besides, the company’s life insurance within the US, which accounted for over 54% of the entire first quarter, was a major contributor in the improvement in the first quarter results.

The improvement in the company’s mortgage insurance unit is not significant going forward. This is because seasonality favors the first half of the year. So, the continuity of this profitability remains in question, particularly when the company’s guidance spells out a breakeven or modest profitability. Looking at this, the company has decided to target their operation expenses. An announcement was also made in this regard about eliminating some 400 jobs. This will save around $80 million to $90 million in pre-tax expenses.

Foolish Takeaway

The aforementioned company will benefit the most from a fast improvement in the US housing markets. Some institutional investors are also of the same view. Since institutional investors are better equipped to conduct thorough research on their investments, I believe retail investors should track their investments.

Adnan Khan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article Why Do Institutions Love These Stocks? originally appeared on Fool.com.

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