By Glen Bradford
What is portfolio insurance? A method of hedging a portfolio of stocks against the market risk by short-selling stock index futures.
Let's settle for just hedging against market risk. Market risk is the risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market-risk factors.
So let's assume that the stock market goes down 50%. Granted, this is unlikely to happen with the seemingly inevitable monetization of the deficit. But if the market tanks, housing will fall.What's going to happen to the foreclosure market? Do you think more people would be able to afford their homes? Do you think that interest rates could get lower to finance homes at lower monthly payments? Do you think that the economy would improve? Probably not. All signs point to more foreclosures, short sales, etc. The only way that I see out of this trap is to print enough money to justify these higher prices. We're on that road, but it's going to take a while. While we wait, I advise taking a look at default, foreclosure, short-sale servicing companies to hedge against the market risk. Fannie Mae (FNM), Freddie Mac (FRE), and Bank of America (BAC) are going to need these services badly. As for now, it is my understanding that there are temporary industry-wide problems. Rumors indicate a mortgage moratorium that is supposed to end by the end of the third quarter. The Dolan Company (DM) is trading with a forward P/E of around 9.10, suggesting earnings are going to increase over 50% year over year. They acquired DiscoverReady in November of last year and, in my opinion, historical operating income instead of historical net income should be used to forecast the future, in this case. Altrisource Portfolio Solutions (ASPS) is trading with a P/E above 20, is getting upgraded by analysts, and recently acquired The Mortgage Partnership of America. That said, note the rough $3.2M in EBITA that was acquired through the MPA and the more than doubling in properties under management from January through March of 2010. Lender Processing Services (LPS) just pulled off a glowing quarter amidst a period impacted by sluggish industry trends. Trading at an estimated P/E of 9.10 for 2010 makes this one inexpensive as well.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
24/7 market commentary from Jim Cramer and 20+ veteran Wall Street gurus. Get access to the latest trading ideas on stocks, options, and ETFs as well as a real-time forum to see the pros exchanging their investment ideas.
- Jim Cramer + 20 Wall Street pros
- Intraday commentary & news
- Real-time trading forum
- Actionable trade ideas
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV