Monday's federal holiday slowed down the flow of 13F filings, and I found myself with some spare time this morning before the floodgates open again. I decided to use that time to run some stock screens and see if I could find anything in the dark and dusty corners of the market that might be worth consideration by long-term value types. I have to say that the lists were very short, as the market is getting that picked-over feel as investors search for a comfortable home in a world of zero-interest-rate policy.
One of my favorite screens is based on the investing maxims of the late Walter Schloss, the esteemed investor who started out working for Ben Graham . The screen is pretty basic. It looks for stocks that trade below book value, have strong balance sheets with low debt levels and are profitable. In order to make sure everyone is sitting on the same side of the table, the screen looks for companies where management owns at least 10% of the shares. At the risk of sounding like a broken record, the screen has a very low return, and the list of stocks is shorter than it has been since 2006.
While many traders talk of the Four Horseman of the Nasdaq -- Netflix (NFLX), Amazon (AMZN), Tesla Motors (TSLA) and Apple (AAPL) -- I like my three ponies of the insurance industry. All three of them make the cut, as they trade well below book value and make money. They are basic, boring companies that sell insurance and have conservative management that owns a lot of stock. American National (ANAT) currently trades at 70% of book value, and management owns almost 28% of the company. The company currently pays a dividend of 2.89% and has paid dividends for more than 100 consecutive quarters.
National Western Life Insurance (NWLI) trades at just 53% of book value, and the officers and directors own 34% of the company. The company is focusing on developing the life insurance business right now, since the annuity side has struggled to attract money at the current very low level of interest rates. The strategy is working, as the company reported a solid quarter, including a 19% increase in life insurance premiums. The company is not very exciting, but it's profitable, and the stock is ridiculously cheap. I find that cheap and profitable works better than exciting most of the time.
Kansas City Life Insurance (KCLI) is another stock whose name is probably not going to come up around the water cooler anytime soon. The company sells life insurance, annuities and group benefit programs in the lower 49, and it has been around since 1895. Management owns almost 70% of the shares and would seem to have a vested interest in a higher share price over time. The shares currently trade at just 70% of book value, and you get paid a dividend, so you get paid to wait for the stock to go higher. At the current price, the shares yield 2.37%. It is a stock that can bore you all the way to the bank.
When you look at the lists of shareholders for these stocks, it looks a lot like a value investors' hall of fame. You will finds legendary value shops such as Royce Funds, Tweedy Brown and Brandes in the ownership lists of one or more of these ponies. Lesser-known but very successful investors such as Paul Isaac of Arbiter Partners and Donald Smith also have stakes in these safe, cheap and profitable companies.
All three of these stocks have done a decent job of growing book value over the years and can be owned for very long periods of time, as their value is increasing as quickly as the stock prices advance. Unless these companies decide to sell themselves at some point, you will never hear these stocks talked about on the financial news networks, but they are proven performers at ridiculously cheap prices that have the potential for very large and exciting gains over time.
The Four Horsemen of the Nasdaq are certainly far more exciting stocks. They get all the headlines and TV chatter, and they will indeed be the talk of the town most days. However, they are very expensively valued and have no margin of safety at all, and if a horse stumbles, there is a real possibility of a permanent loss of capital. I prefer to ride my steady-as-she-goes ponies as they trot down the safe and cheap path to profit.