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| Symbol | Sector | Return | Exposure | Trades | Last Trade | Status | |
|---|---|---|---|---|---|---|---|
| ALL | Property and Casualty Insurance | -14.54% |
|
6 | 27-Aug-08 | Currently Holding |
31-Mar-08
Allstate Investment Analysis
Holding Rationale for ALL.
Valuation Completed: 3/28/08
Rating: Buy
Comments: Well run company that generates a ton of cash flow. The operating business continues to execute well. Concerns about their investment portfolio, which are justified, have pushed this stock to an insanely cheap level.
All in, this is one nasty looking portfolio. I do not believe the current financial statements accurately reflect the risk profile. I would make the following adjustments in order to establish a true fair value:
-$1B of AAA private label MBS - Apply 5% haircut (50mm)
-$1.4B Alt-A MBS marked at 95. Adjust the mark to 80 - (210mm)
-$568mm CDO marked at 80. Adjust the mark to 60 - (114mm)
-$7B CMBS - Apply 5% haircut (350mm)
-$180mm credit cards marked at 85. Adjust to 70 - (27mm)
-$4.6B of non investment grade bonds - Apply 10% haircut (463mm)
-$10.8B of mortgage loans - Apply 5% haircut (540mm)
The total result is a haircut to the portfolio of (1.754B)
After these charges and using an 11% discount rate, the portfolio is worth $52 - $4 above the current price. In fact, to generate a portfolio value this is inline with the current stock market price, you would need to expect $2.5B of write downs beyond the 1.8B I have applied.
Knowing the investment portfolio is more valuable than the stock price and that an operating business with dominant market share and great free cash flow is being given to us for free, we must buy this stock. Getting detailed, fair value ranges between $58-$75. Since I can purchase these shares nearly 20% below the lower end of the range, obtain a portfolio worth nearly $52 and collect a dividend that is inline with the 10yr US Treasury, ALL will serve as a core portfolio holding and should be bought up until a price of $52.
Tagged Stocks: ALL
Posted at 10:27 in Holding Rationales | Permalink | Comments (0) | Top
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