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Favorite Stock: FNF
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January 3, 2002: 11:02 a.m. ET
Fidelity National's valuation and position make it strategist's top pick.
By Staff Writer Andrew Stein
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NEW YORK (CNN/Money) - With the housing sector staying a step ahead of the sagging economy, title insurance is becoming a profitable -- although not widely recognized -- field.
Before issuing a mortgage, most lenders require title insurance that ensures there are no liens on the property and the entities on the title are indeed those who own it.
Fidelity National Financial is the nation's largest provider of title insurance, and that makes the company the favorite stock of Kinetics Mutual Funds' chief investment strategist, Peter Doyle.
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Kinetics Mutual Funds' Peter Doyle | |
New home sales rose 6.4 percent to 934,000 in November, up from a revised 878,000 in October, and the majority of these new homes were purchased with mortgages requiring title insurance.
Fidelity National Financial also benefits from the refinancing boom ignited by the precipitous drop in interest rates, as mortgage lenders also require title insurance when providing refinancing.
The company's third quarter reflected the robust housing market, as it easily surpassed last year's results.
Fidelity National reported a third-quarter profit of $84 million, or 95 cents per share, on revenue of $1 billion. Last year, it posted third-quarter earnings of $37.5 million, or 49 cents per share, on sales of $790 million.
Analysts expect more of the same from Fidelity National, as they see the company earning 90 cents per share in the fourth quarter, up from 48 cents per share in the fourth quarter last year.
Doyle explained what makes Fidelity National Financial (FNF: up $0.09 to $24.49, Research, Estimates) the leader in the title insurance industry.
Is Fidelity National dependant on refinancing? As economic data improves and chances decrease for additional interest rate cuts, has the company seen the best of the refinancing boom?
They definitely get business from refinancing, but they see more money from insuring new home titles. With refinancing, the homeowner already has title insurance, and the lender requires that the policy be updated, which requires less work than insuring new titles. Fidelity is better off in a robust housing market.
But this is really a play on valuation, not the housing market or the refinancing phenomenon. They own shares of other publicly traded companies, like Santa Barbara Restaurant Group, and without those, it's trading at around $20 per share. It's going to report $300 million in earnings in 2001. That will give it an extremely low price-to-earnings ratio of about 6.5.
Fidelity National trades on pretty low volume. Any concern with volatility?
That might be a concern if you are going to be an active trader, but we like to say if the markets closed for 10 years, this is a stock we would be comfortable holding. It has compounded shareholders' investments by 22 percent over the last decade.
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What are some of Fidelity National's competitors and what sets it apart?
It competes with First American Corp. (FAF: up $0.16 to $18.71, Research, Estimates), LandAmerica Financial Group (LFG: up $0.21 to $28.23, Research, Estimates), and Stuart Information Services (STC: down $0.01 to $19.69, Research, Estimates). It's the largest in the field and it seems better at running a low-cost, efficient business.
Do you have a price target on FNF?
I see it at easily two times what it is today, at $40 plus per share.
Do you have a stake in Fidelity National Financial?
We own it in our New Paradigm Fund, we are buying it, and will continue to buy it. 
* Disclaimer
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