Last week I sold off Homeowners Choice (HCII), a Florida based Property insurer. The stock was initially recommended to the Premium members in March of this year, and I purchased the stock for the Value Stock Guide portfolio on Mar 02, 2012 at an average cost of $11.18/share including commissions. The stock was sold at $22/share on July 10, 2012.
The 96.23% gain does not included dividends received, which currently yield 4.4%, or 7.2% based off the original purchase price. Including the 1 dividend of $0.2/share that was received during this period, the total return from the stock is 98%.
- Purchase Date: Mar 02, 2012
- Average Cost: $11.18
- Sell Date: Jul 10, 2012
- Sell Price: $22/share
- Capital Gains: 96.23% net of commissions
- Total Returns: 98.01% net of commissions
Coincidentally, $22/share has so far proven to be the all time high for the stock. It is however important to remember that I set the sell price targets when the recommendation is initially made. In this case, I had set the sell target of $22/share way back in March and unless the changes in the business warrant updating the targets, we follow through on the sell targets with discipline.
Why the Stock was Recommended?
Late last year, Homeowners Choice more than doubled its book of business at very little cost when State of Florida helped it take over policies from the struggling Homewise. However, the stock continued to trade as if the transaction never happened. The transaction helped HCII to double its revenues with little loss in the margins.
The catalyst in this case was very simple. As further quarterly reports come in, they would show revenues and EPS increase 100% or more, drastically changing its multiples and bringing the stock to the attention of the general investing public, and perhaps, even Wall Street. That has happened now, the stock has responded and publications such as Seeking Alpha are now full of articles talking about HCII.
Should You Buy HCII Now or Sell?
The current price of $18/share compared to my sell price of $22/share would indicate a possible upside of another 22%. A good question to ask would be if I am going to get back into the stock at these prices and whether it is a good buy today. Here is what I think.
HCII was one of those rare stocks where the upside was more or less guaranteed and was going to be relatively quick. It also didn’t hurt that the company set the stage by increasing its dividend 3 times in 3 consecutive quarters. This was the easy money. As easy as it gets in investing.
What comes next is essentially making a bet. Buying now, you will be making a bet that the management continues to excel and deliver (and by all accounts, they have been very competent and extremely shareholder friendly). A bigger bet you will be making is that Florida has a benign hurricane season this year. Since the company only insures homes in Florida, it is particularly exposed in this area, even with the levels of reinsurance coverage it maintains.
I can bet on investor behavior and win. Betting against nature is not my strong point and I will pass.
PS. Incidentally, this will be the last sale report I post publicly for non premium members. You will still be able to follow my portfolio and look at the recent sales, at least for a little while. There might be a few more changes as I work towards changing the Premium membership from the current "open registration" (anyone can sign up when they please) to a more selective "invitation" format, where you will be able to express your interest in joining VSG Premium and can do so if an invitation is extended to you.