Staying actively involved as an investor is not simply about buying and selling stocks. In fact, inaction is often the most effective form of action for an investor. The current market environment is an excellent example. Trying to find value these days, which I define simply as buying a business below its intrinsic value, has become more difficult thanks to a five-year bull market.
I have no problem finding amazing businesses I would love to own, but the price keeps me on the sidelines. While I wait, I add to my watch list so I can be ready to pounce when the price is right.
MWI Veterinary Supply (MWIV) is a $1.7 billion supplier of animal healthcare products in the U.S. and U.K. It is a very solid business with attractive returns and capital. After hitting a high of $188 a share, the stock has fallen back to $137. The past few years of strong growth has caused excitement in the stock. The recent pullback seems to be contagious in the pet space; shares of retailer PetSmart (PETM) recently dove on a weaker-than-expected quarter. But growth in the pet segment is likely to remain very robust in coming years and many of today's generation opt for pets over kids or both. More pets mean more food, medicine and accessories -- essentials in the life of a pet.
Investors Title (ITIC) is a provider of title insurance to the mortgage industry. Title insurance is a staple in the real estate business, so it's been interesting times for ITIC. Yet ITIC is basically one of a handful of companies that underwrite title insurance, operating in an oligopoly of sorts. The other major player is Fidelity National Financial (FNF), a $9 billion provider of title insurance. FNF is trading at 30x trailing earnings.
Investor Title shares have come back from $88 to $66 valuing the company at $136 million or 11x trailing earnings. The past three years have seen income more than double, to more than $14 million from $7 million. Even though housing activity may be cooling, it's likely that the next five years will be better than the past five years. To be sure, higher loan-to-value loans don't require title insurance, so today's tougher lending requirements may be the reason why the shares have lost some enthusiasm. At the current price, ITIC trades for book value. Fidelity National commands 1.5x book value. Owning this business at any meaningful discount to book -- 15% or more -- would be a great addition to a portfolio.
Not having much to buy doesn't mean there isn't much to do. Understanding more about these businesses and the others that I will add over time to my watch list will pay dividends in the future to anyone willing to do the same.