Should You Buy It: Genworth Not Worth Risk

This is just 5% of the company's invested assets, though management said that losses would be limited to $110 million to $195 million, under a worst-case scenario.

If that's the only risk the company's book value faces, then maybe the downside in Genworth shares could be contained near current levels. In fact, board director James Parke stepped in and bought 10,000 shares of the company on the market earlier in the month, when the stock was trading in the high-$20s.

But looking at Genworth's balance sheet, it's also worth noting that the company has $2.45 billion of goodwill and intangible assets, including acquisition premium costs and capitalized software. A truer look at book value would be the insurer's tangible book, which is down around $23.75 a share, excluding these "soft assets."

Even if Genworth's book value doesn't lend as much support to the stock as the bulls would hope, the company also currently looks inexpensive on a price-to-earnings basis.

At current levels, the stock trades at just 9.5 times expected 2007 earnings of $3.17. This is an 8% discount to its peers, but given the company's near-term profit expectations, this likely will prove optimistic based on Genworth's dependence on mortgage insurance.

Based on the company's double-whammy exposure to subprime mortgage risk, I believe that readers should hold off from buying Genworth shares at current levels. The book value is not lending as much support as it may appear, and the stock is likely to revisit its recent lows in the coming months.

« Previous Page

1 2

Next Page »