Assured Guaranty Corp is re-insurer of municipal bonds. One reason the company stood out to me is due to the aggressive fashion in which they repurchase their own shares. Since 2009, they have bought back about 25% of outstanding shares and they still have the cash there to buy back more.

Another reason I really like the stock is because they are at a large discount to book value right now. They trade around .8 while the industry average lies around 1.4. The reason I’m using Price/Book instead of Price/Earnings is because AGO is an insurer, which means there are a multitude of factors that affect earnings and cash flow. A lot of times when insurers are expanding, it can suppress earnings.  Similarly, when they are contracting as part of a normal insurance cycle, it releases cash that used to be held down as an obligation associated with outstanding debt. Analysts believe that the adjusted book value which is published by AGO is a good proxy for value which is currently around $70, while the stock trades in the low $40’s.

The likely reason they trade so cheaply right now is because of the Puerto Rico situation.  However, this is not the first time AGO has been through a situation like this, and they are more than capable of handling it. These governments have a tough time when they sit down to negotiate with Assured Guaranty because they will need AGO the next time they go to issue debt.

In all, Assured Guaranty Corp is a good addition to almost any portfolio, especially those with little to no insurance or financial positions.

Facebook Comments