Look For Gems on the New-Low List

Having spent most of the weekend off-island and otherwise occupied from the markets in the pursuit of wine, woman (singular), and song, I came back to the island today determined to ignore the almost-70-degree temperature and get a little homework done as we prepare for a new week of trading. Although not a short-term trader most of the time, I do find it helpful to have some idea of where we are in the market and the world at any given point in time.

First, a look at the markets, complete with the caveat that if I had to depend on my market-timing skills I would be dining this evening in a soup line instead of at Fisherman's Inn: I think that any rally in the market is probably either over or going to fade this week. I have intermediate targets of 1275 on the S&P 500 for now but will move them down in a heartbeat if the news continues to be bad.

The auction rate securities and mortgage insurers will continue to dominate the headlines, and there is no easy fix in those areas. In the insurers' case, FGIC's announcement was the first glimmer of somebody figuring out the right way to settle this crucial part of the marketplace. It will not be quite that easy, however.

I suspect the eventual solution is selling the profitable municipal insurance book to Messers. Buffett and Ross and using the cash to support the runoff of the toxic part of the portfolio That would spell the end of MBIA (MBI - commentary - Cramer's Take) and Ambac (ABK - commentary - Cramer's Take), but let's be honest. If you and I cashed in our profitable dividend-paying portfolios and blew it all in the options market in a few short years, no one would bail us out. Nor should anyone bail out the mortgage insurers and allow them to remain going concerns. Sell the book, run off the waste with the cash, and close the doors. You made a bad bet and a worse business decision. We will miss you, but goodbye. In the meantime, the ensuing confusion and bad news should weigh on stock prices.

A look at the weekly new-low list in Barron's shows that some of my favorite insurance companies are starting to fall near levels where I might be comfortable buying them. CNA Surety (SUR - commentary - Cramer's Take) is 62% owned by CNA (CAN - commentary - Cramer's Take), which recently reported terrible fourth-quarter earnings and put pressure on the shares of both companies. CNA Surety, which writes fidelity and surety bonds, had a 1% earnings increase and showed no problems with its investment portfolio. Much below 14 and I would be a buyer of this one.

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At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.