A New Bull Market
One Great Insurance Stock
In last week's very popular column, I introduced you to my dog Layla, a Weimaraner.And I focused on the topic of dog breed discrimination by insurance companies.
At the center of the discussion is this "blacklist." If your dog is on the list, many insurance companies won't insure your home.
American Staffordshire Terrier
You can read the whole column here.
Following are the best responses.
"My wife and I own a Rotty, with no implications or concerns with insurance. Maybe Texas is different? Maybe because the insurance company is USAA, insurer of those defending our freedoms? Either way, our Rotty has her "CGC" document. That's "Certified Good Citizen." She's been to many classes and knows her rules and commands; and is an absolutely perfect companion for us.
"A dog is only as good as its owner(s). Don't train your dog to be aggressive if you can't control it. A dog is no different than a person: if you get in its face and provoke it, it WILL respond. They cannot speak, but they CAN communicate that you're walking on the edge of a fine line and if you don't stop, they will teach you a lesson. That said, they also are no different than your children. If you raise them with love and understanding, they will make you proud one day, returning the love and affection."
"A wonderful billboard used to be at the entrance to Morehead City, North Carolina. Picture of a dog, with a caption below the picture, 'Try to be the person your dog thinks you are.' "
J.S., Richmond, Virginia
"I am of the school that it is the training the dog receives and not the breed. Obviously there are times when genetics may weigh in and a particular strain may be less friendly to humans. Owners need to be responsible, not the insurance companies. If insurance companies are concerned about the perceived increase in risk they can simply raise the premiums of the dog owner. Then the owner of the policy can look around for a better deal!
"Nice looking dog you have there! In the past we have had huskies, chows and elkhounds. All were mixed breed and were great pets! Cheers and Merry Christmas."
B.A., Arvada, Colorado
"I have an English Staffordshire Terrier. He came from Tennessee, has papers. He is the most loving dog I have seen; he is built different in size and appearance from American Staffordshire Terriers. With him not on your list, is it not an issue or were they left off?"
"Thank you so much for your email concerning dogs and insurance. I help a friend by reading his investment email and I read your email today.
"I agree with you 100%. I had a similar experience with my insurance company in Colorado. I had 4 dogs at that time. The inspector was walking around on our property (10 acres) and she noted that one of the dogs growled at her. When I got the initial letter from the insurance company, I was livid. This was a person who was a stranger to my dogs and was doing something that was suspicious to them. We lived in a rural area and had NO close neighbors. As I explained to the insurance company, the police response in our area was at best 20 minutes from the time that something was reported. My dogs were another form of insurance that their company could not provide, i.e. an early warning mechanism about prowlers or thieves. Many people in rural areas have dogs for this reason.
"I also work with humane societies. The dog breeds that the insurance companies seem to consider "vicious" are deemed so more because of size. Inadequate training by owners or not understanding breed traits is a major part of the problem. Actually in my work with adoptions, we had more issues with the smaller breeds such as Cocker Spaniels (which frequently bite) and Chihuahuas.
"I really enjoyed the pictures of your dogs. I had a Weimaraner. My dog was a mix (mother was purebred, but father was fence-jumper--probably Doberman). She was awesome. I adopted her as a puppy because she had a major injury that required amputation of one of her back legs. You would never have known this if you saw her run. She was in the puppy stage until about age 10."
"An unexpected lament regarding the ceding of power to the insurance companies. The Republican party is controlled by those who would repeal 'Obamacare,' thus ceding even more power to the insurance companies and resuming our slide down the quality of care slope. I share your concerns, as expressed in your letter. Yes, Obamacare probably creates more problems than it solves, so all that means is that there is plenty of opportunity to redo it, but thinking that only unfettered privatization of all industries is the solution is ignorant, wrong and naive. This all simply proves (in my mind, at least) that all voters, regardless of party affiliation, should ask their representatives to moderate their extreme positions and embrace balance and compromise. If they won't listen, vote them out, regardless of party. The process starts at the local level and I fear that too many Americans are too complacent to do the work necessary to understand the issues or get to know their representatives so they can make an informed decision. Those who are making the rules are thinking only of themselves and not being statesmen. You, I and America are not being served.
"As for your dog, since I live in PA, it seems I don't have to worry about being uninsurable. My daughter had a half pit bull mutt that was one of the most loving and gentle dogs I have ever known."
D. B., Harleysville, Pennsylvania
"Our freedoms have been gradually taken from us by the liberal left in the name of so many things, PC being one, safety another, self esteem and the lists go on. Become a libertarian; it is very 'liberating.' We need to stop allowing either the Government or Insurance companies or anyone else from robbing us of money, which isn't the true issue; the true issue is Freedom! God Bless you and yours this 'Christ'mas."
D. F., Medford, New York
"I love friendly dogs but dangerous dogs should be kept away from the public. Sorry, I'd rather people give up some freedoms (like they do in the battle against terrorism) than face dangerous consequences. So even though the insurance companies are looking out for their bottom line, I'm here to cheer the trend so we have safe neighborhoods. Oh, and people letting their dogs use my lawn to do their business and not bothering to clean up--deplorable."
"Saint Bernard?????????????????????????????????????????? They may be big but are amazingly kind and gentle ... heck they are rescuers!!!!!"
L. B., Alpharetta, Georgia
"Great dog. I have a Griffon tryin' to train to hunt chuckers here in Nevada."
R.N., Reno, Nevada
"I love the picture of your dog! Our family also loves Weimaraners ... we are all dog lovers. I would have been on the black list, because I had a Dalmatian (had to put him down two years ago). Between myself and my two kids, we have four poodles (three miniature, one king) and one mutt picked off the streets of North Carolina (legally, though).
I. S., Charlotte, North Carolina
"P.S. Anyone who loves dogs like I do is OK in my book and furthermore, I am an ex-patriot Massachusetts resident (went to U-Mass in the 70s)."
"This sounds a lot like the gun debate--it's not guns that kill people, it's people that kill people. The only thing is that dogs are not inanimate objects and do need to be managed. Unfortunately, most people are so busy and with everyone in their households working, and they shouldn't be keeping dogs; dogs get lonely by themselves all day and are more likely to bark, chew and generally get into trouble.
"I grew up with several Labradors and Retrievers that were completely friendly, barked when the doorbell rang before greeting the people enthusiastically and 'wouldn't hurt a fly', until the day they saw a rabbit running in a field or a child running away screaming in fear--then their adrenaline and animal instincts woke up and they behaved unlike we'd ever seen them before! We didn't totally lose control, but were amazed at what had been lying latent in them for 10 years."
"We later had a beautiful Rottweiler, who was by far the most interesting of the bunch, had a really interesting personality and a great sense of humor. However, you did need to make sure you stayed the 'top dog' with her or she could growl and refuse, say, to be put out.
"I hope that people don't lose the right to keep dogs as I've seen the fantastic benefits to everyone, even people in nursing homes and hospitals--maybe they just need tougher penalties for people who don't manage their dogs properly.
"I am an eye surgeon at a large level 1 trauma center, the largest north of NYC. We see a lot of facial and eye injuries, including dog bites. It has been my experience that once Rottweilers and Pit Bulls attack, they do much more damage than other dogs. They don't just bite, they relentlessly rip the flesh (including eyes) off their victims. And statistics from the CDC (U.S. Centers for Disease Control) confirm this. Although Rottweilers and Pit Bulls represent less than 2% of US dogs, they inflict over 25% of bites requiring hospitalization, and 79% of dog attack fatalities. And over half of fatal attacks on children are by Rottweilers or Pit Bulls that have no human bite history. I am a dog lover, and have always had at least one dog at home, am the son of a veterinarian, and I went to veterinary school prior to medical school. But Pit Bulls and Rottweilers are dangerous animals, and should be treated under law like other dangerous animals, including apes and wild cats such as lions. They do not belong living in close proximity to humans, particularly to children."
E.F. Boston, Massachusetts
"I'm sure my Dad forwarded your article to me for various reasons. First, I own four Weimaraners, and probably will not be without one for the rest of my life. Second, I have been employed in the insurance industry for over 40 years. Finally, I have been a certified dog trainer since early 2007.
"I agree with your analysis--slowly giving up one freedom after another, not only to insurance companies. The insurance industry has changed significantly since I started working, and unfortunately often not for the better. I am in the camp that there are no bad dogs, just bad owners. I have worked with any number of breeds considered "bad", and they have been as "good" as other dogs. I have had more problems with some of the smaller breeds that don't make the "bad" list. I find that I spend a great deal of training time training the owners, and teaching them how to effectively understand and communicate with their dogs.
"I appreciate the time you spent researching your article, as well as the fact that you published it to your followers. If more people were educated about what makes a "bad" dog, there would certainly be fewer "bad" dogs, and possibly less discrimination against dogs in general."
Moving on, I'm happy to see that there are still great worries about the future of both the Euro and those southern European countries that don't work as hard as the Germans, or pay taxes as dutifully, either.
And why is this worry a good thing?
Because, as all experienced investors know, bull markets climb a wall of worry!
And that's what this bull market is doing now!
As a result, I'm more optimistic than at any time in the past few months, about both the short- and long-term prospects of the market.
And I've got a great stock to recommend to you!
It's in the insurance business, which seems appropriate following the previous section on dogs.
Its name is Reinsurance Group of America (RGA).
And Roy Ward, the editor of Cabot Benjamin Graham Value Letter, recently recommended it. He wrote:
"Reinsurance Group (RGA) is the second largest provider of life reinsurance in the U.S. Reinsurance Group also offers annuity, critical care and group reinsurance. The company guarantees insurance contracts for insurance and other financial companies and sells its products in 25 countries around the world. The company also sells life and disability insurance to consumers in the U.S., Canada, and abroad. It has over $2.6 trillion of life reinsurance in force backed by a strong balance sheet with conservative bond investments.
"Reinsurance Group is in position to capitalize on the significant growth opportunities in the U.S., Canada, India and China. Revenues increased 1% and EPS rose 19% during the last 12-month period, spurred by improved market conditions and higher prices. We believe strong growth from its international operations as well as a boost from recent purchases will drive EPS higher by 6% during the next 12 months.
"RGA's shares are clearly undervalued at 6.8 times current EPS with a 1.4% dividend yield. RGA shares sell at a huge 42% discount to current book value. The balance sheet is strong, enabling RGA to take advantage of additional opportunities in the reinsurance industry. Higher interest rates could add significant income from RGA's conservatively invested bond holdings. We fully expect RGA's stock price to increase to our Minimum Sell Price of 77.52 during the next one to two years. RGA is low risk."
Sounds good to me. And I can add a few more details.
First, Roy has added the stock to his Classic Value Portfolio. This portfolio, composed of eight select holdings, has gained 28.2% in the past 24 months, compared to 16.8% for the Dow. Longer-term, the portfolio is up 173% since inception in November, 2002, compared to just 35.4% for the Dow.
Second, RGA had been trading as high as 64 back in July, so getting it at the current price is like getting a 22% discount.
And third, financial stocks were among the hardest-hit sectors this year, so stocks like RGA have a lot of upside potential.
For conservative, patient investors, I recommend it highly.
Even better, I recommend that you consider a no-risk trial subscription to Cabot Benjamin Graham Value Letter, so that you can get updates on RGA and other undervalued stocks every week!
For more details, click here.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory