Universal Insurance Holdings (UVE)
I bought UVE before I was doing any type of valuation or anywhere near the amount of research I am doing now. I originally bought into them almost exclusively for the huge dividend, and without reading any annual or quarterly reports at all.
I have thus paid the price for my investing indiscretion and will be selling out at a loss of around 37%, ouch.
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Here are my thoughts after valuing and reading its annual and quarterly reports.
Pros: Undervalued on an asset basis. UVE are also selling for less than its net cash per share, an extremely undervalued company at this time. But due to reasons I list below, the undervaluation looks appropriate to me.
Cons: Most importantly, I do not trust management. I called UVE’s IR department to ask some questions about how it invests its money: Who makes the decisions, how do they make the decisions, why do they buy the securities that they buy, are they a value oriented company, etc. The IR department would not or could not answer any of those simple questions.
Especially worrisome since the investments UVE has been making have been losing the company tens of millions of dollars while the stock market as a whole has been going up a lot.
The CEO has been selling quite a bit of stock lately, almost 2 million shares in the past month, which is about 4% of its fully diluted shares.
The executives get paid a lot in my opinion for delivering very little in the time I have been an owner.
I do not see any competitive advantages within the company, and barring the insiders, who own 40% of the shares, taking the company private, I do not see a catalyst at this time that could unlock the value of the shares.
Decision: For the reasons above I will be selling my entire position in UVE.
Kinder Morgan Management (KMR)
I am also going to be selling my entire position in KMR. This decision is a bit harder because I like Kinder Morgan’s management and its vision for the future.
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However, I have made the decision that I need to become more concentrated in my portfolio and free up cash so I do not miss out on another Dole that I find. I have decided that KMR has the least amount of upside potential than my other holdings at this time, and I will be selling my entire KMR position at a 15% gain.
I think you should look at the last quarter’s results. It’s true that the high investment in mining stocks fared badly in the last half of 2011, but it did work well in 2010, and last quarter showed a decent profit. The president is still heavily invested in the company. He didn’t sell even close to all of his stock. It is true that UVE has substandard shareholder communications and apparently doesn’t have shareholder conference calls, but it has followed that policy for years and has had decent results. Also, the company is expanding currently into new states like New York. The current price is around the bottom of its multi-year cycle. UVE looks like a good investment to me.
I have read UVE’s most recent 10Q and I agree the numbers do look promising. The main reason I held my position in this company for so long is that they are massively undervalued, even selling below their net cash per share. I have been hoping that I could make my money back on them before selling.
I also agree that branching out to other states will help when another big hurricane hits Florida, but those prospects are in their infancy in my opinion, and it will take a while to get those policies to be even a small part of profits.
However, IR not answering simple questions about how they invest their money, how they decide which companies to buy, who makes the decisions, or even something basic like are they a value oriented operation, really bothered me.
Combining the above with my reasoning that I want to free up cash so that I will not miss out on another Dole like opportunity that I find, led me to my sell decision.
I do think that now might be a good time to buy because UVE is selling at a much lower price than I originally bought at. I will be waiting to see if there is some kind of catalyst and I might jump back in if Universal is still selling at a good margin of safety to either cash or intrinsic value.
What are your thoughts on UVE’s current prospects and management, other than what you stated in your comment?
Thank you for your comments, I really appreciate your input, and I wish you the best of luck if you currently hold UVE.
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