Betting on a Rising Star

01/20/2009 12:01 am EST


Timothy Lutts

Publisher, Cabot Heritage Corporation

Timothy Lutts, publisher of Cabot Wealth Advisory, and Michael Cintolo, editor of Cabot Top Ten Report, recommend a newly public insurance company.

[One] group of stocks whose prospects are better than average in the next bull market [are] those that have come public in the past year or two and have not enjoyed a major up trend yet.

Stocks like these, in a nutshell, have no major selling pressures... and if their companies have good growth prospects, the stocks have major up side potential, as they become discovered by investors, both individual and institutional.
One attractive candidate in this sector is Validus Holdings (NYSE: VR), a stock [that] Michael Cintolo [described as follows]:
“Headquartered in Bermuda, Validus Holdings was formed in December 2005 with over $1 billion of capital from institutional investors following several natural disasters (including Hurricane Katrina) that increased the demand for reinsurance services. The company is focused on “property catastrophe, property pro-rata and property per risk, marine and energy, and other specialty lines.

“Since then, the company has grown revenues every quarter except the most recent, and earned good profits as well. So, why is the stock strong today? The only overt changes are the recent affirmation of a stable outlook for the company by AM Best and the announcement at the first of the year that the company would enter the market for “technical lines property,” with a division based in New York and headed by David Hawksby ... who until recently was president of the Global Energy Property Division at American International Group (NYSE: AIG).”
I look at Validus Holdings and I see a company that brought in $336 million in 2006, $994 million in 2007, and is poised to bring in $1.2 billion in 2008. Fourth-quarter earnings will be released on February 12th.

I also see growing institutional interest: A year ago there were 29 mutual funds invested in the stock—now there are 46.
Finally, I look at the chart, and I see that VR has been beating the market since May. Most recently, the stock has broken out above its August high of $25. It hit new highs [recently].  Average trading volume is impressive, at nearly 600,000 shares per day. I think some big investors are selling their AIG, and one stock they’re nibbling on with the proceeds is VR. (It closed at $24.75 Monday—Editor.). 

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