Tom A's Stock Picks

Buying CINF

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Placed a market order to buy 1,500 Cincinatti Financial (CINF), the stock stood at 37.30. This is 40% of my maximum position for this stock.

CINF is a Property & Casualty Insurance company, writing through the Independent Agency system, very agency oriented. Most insurance companies invest primarily in bonds, due to statutory considerations. CINF has a large amount of Equity investments also, because they have capital above and beyond statutory requirements.

I reviewed their Financial Statements and completed my workbook to look at their financials and form an opinion on value. It lists thier equity investments, which are primarily in conservative, dividend paying companies. Their investment strategy is dividend oriented.

Property & Casualty results have been excellent, similar to what others in the industry have been achieving, with combined loss and expense ratios in the 90% area. In the past, this was very unusual in the insurance business, but has been more common lately. Normally, insurance companies compete by writing new business at discounted rates. Lately more of them are doing share buybacks or special dividends to return the excess profits to shareholders. That, together with the concerns about the quality of bonds, may make them more circumspect in competing at a loss, diminishing the effect of the softening market.

At the current price, CINF is trading under its tangible book value per share. It has generally been a very good buy at that kind of price. I think this stock is worth more like 45-50 per share and would look for it to rise to that level as the fear around financial stocks subsides and as their fine, conservative underwriting and investment style is appreciated.