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Meadowbrook Insurance Group Inc. (MIG): Insider's See Value

 February 26, 2013 03:03 PM

(By Rich Bieglmeier) Insurance Stocks lit up iStock's bullish sectors in our Daily i On the Market newsletter. So, we found great interest in seeing multiple insiders at Meadowbrook Insurance Group Inc. (MIG) purchasing shares of the small-cap property and casualty stock.

Founded in 1955, Meadowbrook focuses on three segments of the specialty insurance marketplace: insurance carrier operations, insurance services, and retail/wholesale insurance agency operations. The insurance carrier operations include two specialty areas: programs and specialty excess & surplus lines. MIG operate six insurance carriers and are licensed on both an admitted and non-admitted basis in all 50 states.

[Related -Do Insurance Stocks Do Better Than Average Over The Long-Run?]

Since February 13, 2013, five insiders bought 39,115 shares of MIG for a total investment of $254,120. Interestingly, two of the insiders, Director, Robert Naftaly and Karen M. Spaun, Chief Financial Officer, Chief Accounting Officer and Sr. VP, bought in the first half of 2012, and before the stock crashed. However, Naftaly added to his position following the July 2012 waterfall.

To us, the most attention-grabbing purchase in this go around is Chief Executive Officer and President, Robert S. Cubbin's buy of 10,000 shares at $6.35. iStock finds the head honcho's activity intriguing because his last trade was a sale in February 2012 at $9.90 a share. The 52-week high for MIG is $10.12. It's said that only liars sell at the top. Well, it looks as if you can add at least one CEO to that list.

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Meadowbrook recently reported earnings that failed to live up to expectations; however, revenue was stronger than expected, rising 33.42% to $299.88 million, handsomely exceeding the consensus forecast of $243.8 million. However, $52.1 million of the quarter's revenue came from "harvesting gains embedded in our investment portfolio." Take the "harvested gains" out and MIG still topped rev estimates at $247.78 million.

Looking at the insurance company's stocks chart, iStock can see shares settling back to support at $6.75 to $6.50 with upside resistance at $7.75-$8.25.

Fundamental-wise, Meadowbrook Insurance Group appears to be undervalued relative to historical valuations relative to itself. MIG currently trades at 0.62 times its book-vale (P/B). The five-year average P/B stands at 0.82, putting the stock at a current discount of 24.47% versus the average P/B.

As we type, the property & casualty stock is valued at 0.3527 times sales (P/S), which is marginally higher than the five-year low P/S of 0.29, and a fraction of the industry average of 0.91. To trade at the five-year average P/S of 0.6233, MIG would have to be priced at $12.37

At the moment, Meadowbrook pays a small dividend of 8 cents per share, translating into an annual dividend yield of 1.1%.

Overall: Meadowbrook Insurance Group Inc. (MIG) appears to offer value for investors looking for exposure in the property & casualty insurance space. The cluster of insider buys, particularly CEO Robert S. Cubbin, is encouraging.


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