1. Archive

Insurers find niche; speedway on track

Published Oct. 9, 2005

Steve Halpern regularly reviews more than 400 stock market newsletters and services, choosing what he believes to be the most interesting or informed recommendations for inclusion in this column and his own newsletter, the Dick Davis Digest. For subscription information or further details call (800) 654-1514.

In a recent interview with the Wall Street Transcript of New York, money manager Kevin Daly of Hoefer & Arnett recommends three Florida-related stocks. Two are "niche" insurance companies; the third runs one of the sporting world's most popular events.

Foremost Corp. of America


Grand Rapids, Mich.

OTC (Symbol: FCOA)

52-week range: $31.25-$37.75

Friday's close: $35.12{

"Foremost is the leading mobile-home insurer in the United States, with a market share of roughly 19 percent _ and a share of more than 20 percent in Florida. It has over 1 million policies in force nationwide, which places it among the top 10 homeowner insurers in the country.

"Foremost, which spends only about $90 to produce a mobile-home policy, is the industry's low-cost producer. And it has a huge data base of information regarding risk in the mobile-home area, so its underwriting practices are quite solid.

"It knows, for example, which mobile-home parks are more likely to be hit by arson, or which are more likely to be flooded after a big rainstorm. This data base is proprietary; I'm sure its competitors have similar information, but not of the quality that Foremost has.

"Thanks to Hurricane Andrew, the company took an after-tax hit of about $0.55 a share, or roughly $9-million before taxes. But other mobile-home insurers with much less market share in Florida took much greater losses due to the storm. That, again, speaks very well about Foremost's underwriting practices.

"We believe the company will see earnings jump some 40 percent this year, to $3.15 a share. We recommend purchase."

Mobile America

Headquarters: Jacksonville

OTC (Symbol: MAME)

52-week range: $21.25-$25.50

Friday's close: $24.75

"Mobile America is a property-casualty insurer with a very specialized niche. It underwrites "minimum coverage' car-insurance policies sold by those walk-in insurance agencies that have sprung up across the Sunshine State near motor-vehicle registration offices.

"This type of insurance has become something of a cottage industry in Florida, and Mobile America has the largest market share in the state within this sector. Mobile doesn't actually own the agencies or offices that sell this insurance; it merely underwrites the policies they sell.

"Back in 1988, the Florida Legislature increased the minimum level of car insurance that's required, which effectively tripled the size of the market and almost tripled Mobile's business.

"Looking ahead, we expect the company to further increase its market share. It has become very difficult for other companies to compete with Mobile America because of its position as the low-cost producer in the industry.

"Mobile America's stock is currently selling at about 11 times 1992 earnings. We expect the company to report 1993 earnings of $2.50 per share, a 25 percent increase over the prior year."

International Speedway

Headquarters: Daytona Beach

Pink Sheets (Symbol: ISWY)

52-week range: $63.50-$98

"International Speedway is a unique company in that it operates several motor racetracks around the country, principally along the East Coast. It runs, among other events, the Daytona 500, which is thought of as stock-car racing's equivalent of the Kentucky Derby or Wimbledon.

"The company has produced earnings growth in excess of 20 percent annually in the last several years, and after-tax returns on equity and assets have run more than 20 percent and 15 percent, respectively.

"It is able to grow principally through expanding its racetracks, through raising ticket prices, and through the arrangements it has with TV networks such as ABC, CBS, ESPN and the Motor Racing Network.

"The company has very little debt, lots of cash, and produces a great deal of discretionary cash flow. Its operating margins and net margins would compare with just about any company in the United States, including Coca-Cola or Microsoft.

"Indeed, if you think those are great businesses, you have to look at International Speedway."