We are not banking on a significant acceleration of economic growth, nor do we think corporate tax relief will be easily won on Capitol Hill, but we continue to believe that equities in general and our stocks in particular are reasonably priced, especially given the historically low interest-rate environment, notes value investing expert John Buckingham, editor The Prudent Speculator.
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We understand that pullbacks, downturns and corrections are a normal part of the investment process, while we know that geopolitical news can trigger a sizable sell-off at any time, but we see no reason to alter our long-term optimism.
That doesn’t mean that we won’t keep a little dry powder for new opportunities that will inevitably arise, but we believe that time in the market always trumps market timing. Meanwhile, here's a look at two of our recent recommendations — both in the financial sector.
Axis Capital Holdings (AXS)
Axis is a global insurer, offering a diversified portfolio of specialty commercial property and casualty insurance and reinsurance, emphasizing high severity and low frequency business. Axis represents a solid specialty franchise with an experienced management team.
We like that leadership is focused on controlling costs and bringing specialist underwriting to new target markets, as well as creating more business balance and decreasing volatility.
Q2 adjusted EPS of $1.31 topped consensus estimates of $1.19. While results were better than expected, the bottom line was impacted by a higher frequency of property losses than forecast, but fee income related to capital partners was much better than planned.
Axis has suspended share repurchases until 2018 as it recently closed on the acquisition of Aviabel, a European specialty aviation reinsurer, and announced an accretive offer to acquire Novae Group PLC, a diversified specialty reinsurer operating through Lloyd’s of London. Long a rumored buyout candidate itself, AXS currently yields 2.4% and trades near book value.
Bank of America (BAC)
Bank of America is a global financial giant, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services.
In the U.S., BAC serves 47 million customers via 4,600 retail financial centers, 15,900 ATMs, and online banking services with 34 million active users, including 23 million active mobile users.
With many of the problems of the past decade seemingly in the rear-view mirror, BAC has numerous opportunities to capitalize, from its large deposit base and consumer lending franchise to its “thundering herd” of Merrill Lynch’s financial advisors and wealth managers.
We like that credit quality improved in the latest quarter, which also saw EPS top analyst projections. With the shares trading for just 12 times estimated earnings, and the bottom line likely to benefit from higher interest rates, we think BAC is very attractive.
The Federal Reserve in June approved the bank’s Comprehensive Capital Analysis and Review plan, with the company since announcing a 60% hike in its quarterly dividend to $0.12 per share and the buyback of $12 billion in common stock by June 2018.
