As U.S. Housing recovers, so will Fidelity National (FNF)

Fidelity National Financial, Inc. (NYSE:FNF) is all the way down to $13 a share, but its 9% YTD share decline is nothing compared to MBIA (MBI), Ambac (ABK), or WaMu (WM) tied up in the subprime mess.  Fidelity National is America's second largest title insurer and they were even profitable in Q1 2008.

As Bloomberg.com put it last month, investors backed Fidelity because title insurance claims aren't directly linked to slumping prices or whether mortgages get paid on time, and its holdings have kept their value. Fidelity and First American Corp., the largest company that protects homebuyers from challenges to their ownership, paid out less than 20 percent of revenue in claims last year, while Travelers Cos. and AIG paid more than half.

'"Claims go up and claims go down within a modest range,'' said Jerome Bruni, president of Colorado Springs, Colorado-based J.V. Bruni and Co., which manages $650 million and holds 1.27 million shares of Jacksonville, Florida-based Fidelity. "It's not like Hurricane Katrina can come up and wreak havoc.''

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Title insurance stocks declined at the end of last year to their lowest in a decade relative to book value, or assets minus liabilities, data compiled by Bloomberg show. Fidelity and Santa Ana, California-based First American both trade at their book value.

So why has the stock fallen off the map?

Fidelity's Q1 08 profit dropped 67% to $27.2 million, profitable none the less, but not good enough for Wall Street:

Last week Piper Jaffray cut earnings estimates on FNF, they now expect First American to earn $1.40 per share in the current year, down from a previous target of $1.70 per share. Piper cut their estimate for Fidelity National to 50 cents per share from 90 cents per share, and rates the stock at "neutral."

No surprise there America, refinancing home loans has slowed as mortgage rates increase and the number of houses sold declines.

Nearly all banks require the borrower to have title insurance before issuing a home loan so that the bank is assured that the collateral -- the house -- is truly clear of any prior deed claims.

But the volume of mortgage refinancing has slowed considerably in the past few quarters as banks tighten lending standards and mortgage rates increase.

Masters, add FNF to your watch list, we think it could still fall a few more points.  But the long term outlook is promising for Fidelity National, not to mention the 30 cent quarterly dividend. 

Cash Dividend Information (Quarter Declared)

It's going to take some time, no doubt, but FNF is a stock we plan to be in on ahead of the curve.

Financials

 (In millions of USD)

Disclaimer: No positions in FNF.