NEW YORK (TheStreet) --Shares of Genworth Financial(GNW) - Get Report have had a phenomenal ride higher since the lows of 2009. It was considered "dead in the water" when shares hit a low of 85 cents.
As of Wednesday, the stock is trading at $17.60, up nearly 3% and up over 13% for the year to date. Shares are over 20 times higher, as the five-year chart below powerfully illustrates.
As implied by the chart, as goes the company's free cash flow, so goes its share price. Genworth supplies insurance for three important sectors of the American economy: home mortgages, health care and life insurance. Because of its active focus in all three, I expect Genworth to thrive over the next two years.
The company's shares experienced a 2.6% spike on Wednesday on heavier than normal volume. Having followed the company over the past year I'm still convinced Genworth's stock is still a bargain with good upside potential.
Genworth's CEO Tom McInerney spoke at the annual Inter-company Long Term Care Insurance (ILTCI) conference in Orlando, Fla., on Tuesday. He discussed the new business model and regulatory framework that Genworth wants for a robust private market for long-term care insurance.
McInerney is guiding Genworth towards being a dominant leader in the long-term care business. The public is just beginning to wake up to the vital need for LTC insurance for the rapidly aging baby-boomer demographic.
According to Medicare, at least 70% of people over 65 will need long-term care services at some point in their lives. In a survey conducted by Genworth in 2013, the company learned the median cost of long-term care in the U.S. was more than $80,000 per year and expected to keep rising.
Genworth's outlook for mortgage insurance is also positive for the next two years as the housing market continues its strong recovery. Genworth's other profitable products include annuities and life insurance.
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While similar publicly traded insurers are priced at about 1.2 times book value, Genworth has a price-to-book (P/B) ratio of only 0.6. It's no wonder that shares of Genworth have been labeled a stock market bargain by a number of analysts.
Analysts like me are beginning to realize that the disparity in Genworth's low P/B ratio suggests a share price closer to $22. That's almost 30% above the intraday low of $17.10 on March 19th. The one-year chart below illustrates the low, trailing Price to Book Value and the correlation to the share price.
If shares of Genworth traded with a P/B ratio of close to 1, that alone should lift the share price to around $28, which is my two-year target price estimate for GNW.
Another key metric of undervaluation is the company's forward, one-year projected PE ratio. In Genworth's case the forward PE is less than 10, suggesting the shares remain inexpensive.
As the mortgage, health care and life insurance businesses steadily accelerates in the months ahead, Genworth is situated for more sales growth than Wall Street anticipates. That's another reason why it's a huge opportunity for investors before the smart money realizes that Genworth's shares are too cheap.
The company, which dates back to 1871, has over $100 billion in assets and $9.4 billion in trailing 12-month revenue, according to Yahoo! Finance. The analysts who cover the company estimate on average that Genworth can earn close to $1.50 a share in 2014 on $9.6 billion in revenue. For 2015 they believe EPS will grow to $1.90 a share on revenue of $9.8 billion.
Investors are starting to pay attention. If, as I anticipate, the company exceeds expectations in its next earnings report at the end of April, the stock price should pop. That's why I'm bullish on Genworth Financial and why investors should seriously consider it as an undervalued stock bargain before it's too late.
At the time of publication the author had no positions in GNW.
This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.