ORI - Old Republic International: Exceptional Short-Term Capital Gain Buy Prospect

2023-03-30 06:08:16 ET

Summary

• This is an evaluation of likely coming stock prices, not an appraisal of ORI’s product line or management’s competitive abilities. Those are already evaluated by big-$ investment analysts and portfolio.
• Importantly, the 37 times in 5 years ORI had this balance of Reward~Risk appraisals by Market-Making professionals it only took 10 market days to reach their forecast upside price target.
• And profitability in those trades was achieved on an 81 of 100 basis, compared to competitors often down in the 60s.
• “Likely” is the keyword in uncertain-future forecasts, where profit-margin capture and stock-price increases are a combination of corporate managerial skills and current market circumstances.
• Market records show prior forecast skills and current market price expectations. All encourage direct comparison of related-competitors’ prospects for coming stock prices.

The primary focus of this article is Old Republic International ( ORI )

Our Investment Thesis

We take decisions of major investors to commit sizable pieces of $ Billion portfolios as confirmation of their Reward vs. Risk tradeoff being attractive

Is expressed in the above bullet-points, where odds for, and size of near-term capital gains are put on a comparable basis.

The dominance of Old Republic International in following the outcome of that analysis compared to investment-comparable alternatives makes reading the rest of this article worth your time and effort if you are interested in rates of near-term capital gains. Gains which are likely to be multiples of what market-index averages regularly offer.

Description of Principal Investment Subject

"Old Republic International Corporation, through its subsidiaries, engages in the insurance underwriting and related services business primarily in the United States and Canada. The company operates through three segments: General Insurance, Title Insurance, and the Republic Financial Indemnity Group Run-off Business. The General Insurance segment offers automobile extended warranty, aviation, commercial automobile, commercial multi-peril, commercial property, general liability, home warranty, inland marine, travel accident, and workers' compensation insurance products to businesses, government, and other institutions in transportation, commercial construction, healthcare, education, retail and wholesale trade, forest products, energy, general manufacturing, and financial services industries. The Title Insurance segment offers lenders' and owners' title insurance policies to real estate purchasers and investors based upon searches of the public records. The Republic Financial Indemnity Group Run-off Business segment offers private mortgage insurance coverage that protects mortgage lenders and investors from default related losses on residential mortgage loans made primarily to homebuyers. The company was founded in 1923 and is based in Chicago, Illinois."

source: Yahoo Finance

These growth estimates have been made by and are collected from Wall Street analysts to suggest what conventional methodology currently produces. Here there was ample analyst coverage. The typical variations across forecast horizons of different time periods illustrate the difficulty of making value comparisons when the forecast horizon is not clearly defined.

A principal difference between Active and Passive Investment Portfolio management strategies is in how time is used in dealing with the trade-offs between Risk and Reward.

Alternative Investment Competitor Rewards and Risks

Figure 1

Used with permission)

Upside price rewards are from the behavioral analysis (of what to do right, not of errors) by Market-Makers [MMs] as they protect their at-risk capital from possible damaging future price moves. Their potential reward forecasts are measured by the green horizontal scale.

The risk dimension is of actual price drawdowns at their most extreme point while being held in previous pursuit of upside rewards similar to the ones currently being seen. They are measured on the red vertical scale.

Both scales are of percent change from zero to 25%. Any stock or ETF whose present risk exposure exceeds its reward prospect will be above the dotted diagonal line.

Best reward-to-risk tradeoffs are to be found at the frontier of alternatives down and to the right. As a market-index "norm" currently, the S&P500 Index ETF is at location [17]. The current "frontier" trade-off of Risk vs. Reward extends from ORI at location [9] to WRB at [15] to MTG at [18]. Our present primary interest is in ORI at [9]; why?

The added reward of ORI is more from how quickly it may be achieved, rather than its likely size. A fuller description of investing considerations should add to investors' decisions of the suitability and credibility of the available investment alternatives. Figure 2 presents some of those considerations, drawn from outcomes of prior MM forecasts having the same up-to-down earlier expectation proportions as those of today.

Figure 2

The advantage of determining Market-Maker forecasts for coming stock prices is that they offer many dimensions more than typical "street analyst" forecast of a single target-price at one point in time. Instead of only one higher (or lower) future price, the MM forecasts are drawn from market data valid across relevant (typically shorter) periods of time for both the upper and lower price limits seen as likely to be encountered in such a period.

That range of coming prices for each investment candidate is clearly split into upside and downside prospects by it's today market price. We note what proportion of that whole forecast price range is between the today market quote and the low-end prospect, the downside exposure. We label that % of the range as the Range Index [RI] and note it in column [G] of Figure 2. It gets used to identify and average all prior RIs of similar size as a suitable sample of subsequent market outcomes in column [L], as a proportion of all price-range forecasts for the stock in the past 5 years of market days [M].

With those samples, scaled individually to each candidate's relevant prior-sample outcomes, we now can make appropriate direct comparisons of answers to questions of:

How big a capital gain might be expected from this stock in the next few months? [ I ] Out of the sample, what are the Odds ( how likely ) that any one will be profitable? How long , on average, [J] might it take for a typical sample holding to come to a disciplined termination? In that average holding period, how bad an interim price drawdown might be experienced? How credible [N] is the current upside forecast [E] compared to what history realized [ I ]? Given [E] and [F], what is the current Reward to Risk [T] ratio?

Key attention-grabbers should be column [E], the % upside price changes between [D] and [B], and (based on past forecasts like today's) how likely those forecasts are to come about in the next 3 months: Column [H], Win Odds.

Those odds are from [L] Sample Size prior forecasts with upside-to-downside price change balances like today's, indicated by [G] Range Indexes, where the numeric tells what % proportion of the full [B] to [C] range lies between [D] and [C].

We further take those [H] odds, and their complement, 100 - H, as weights to the price drawdown Risk experiences of the sample [L] during its various attempts to achieve the [E] rewards, as shown in [ I ]. The net of that combination, as [O] + [P] = [Q], gets put in RATE of RETURN measured in "basis points per day" [R] by [Q] / [J], where a basis point = 1/100th of a percent. In other terms, a % of a %.

These [R] column measures provide a universal comparison means for the attractiveness of investment-capital, so the rows of Figure 2 are all ranked, with ORI at the top rank.

Given that we are posed with a decision under the inevitable uncertainty of the future, no collection of answers or actual outcomes can be expected to prove perfection. But on balance they should help investors to tailor their candidate choices to best address the degree to which the data leads to the most satisfying outcomes, most of the time.

Where the objective is to find from the candidates in Figure 2 the biggest, quickest, most likely capital gain in the next 3 months with the least interim price drawdown distress, it appears that the logical choice is with ORI.

Recent Trends in ORI Price-Range Forecasts

Figure 3

(used with permission)

With odds for a profitable experience of 8 out of every 10 and prior experience holdings of less than 1 month (of 21 market days) the prospect of strong triple-digit gain rates is powerful in comparison with other insurance industry investment alternatives and competitive when compared with averages of the best 20 of a large price-forecast population.

Since Active Management position closures achieve reinvestment of (expanded?) capital there may well be an existing opportunity for attractive capital gain from second-ranked Palomar Holdings (PLMR) within the short time period being forecast. That is how CAGR reward rates get compounded.

Conclusion

Comparing these investment candidates to choose the best quick capital gain prospect, Old Republic International appears to be uniquely suited better than all the others, largely because of the closeness of its sell target.

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