Tag - Brka

I can understand when investors are bearish on the stock market and the U.S. economy. After all, there are always two sides to the coin, forget about all the ridges along the outer perimeter. Official unemployment is near 10%. The housing market is only gradually improving, and there's record government debt here in the U.S. and in many other countries. 

But the bears need to take another look before they add high stock valuations to the laundry list of downside catalysts. Because the numbers say stocks are as cheap as they've been since 1990. I think the market needs to pull back a bit in order to hold onto the gains it has made in 2010 - but ultimately I believe many stocks should be trading higher than they currently are.  

Sure, it's easy to look at the 80% move by the S&P 500 and think stocks must be expensive. Same goes for the Russell 2000 which has moved over 100% higher since the March 2009 lows.  

This weekend marks one of the biggest investor events of the year - Warren Buffet's annual shareholder meeting for Berkshire Hathaway (NYSE: BRK-A). There could be as many as 50,000 people in Omaha, Nebraska looking to glean investment advice from Buffet and Vice Chairman Charlie Munger.

But you won't hear Buffett talk about small cap stocks. The investing icon is more likely to discuss the future of derivatives and how potential changes in collateral requirements for derivatives could impact Berkshire in the future.

Put financial services and insurance together in a sentence and most people think of some of the nation's largest companies in the industry: Berkshire Hathaway Inc. (NYSE: BRKA), American International Group, Inc. (NYSE: AIG), MetLife Inc. (NYSE: MET), Allstate Corp. (NYSE: ALL) and The Hartford Financial Services Group, Inc. (NYSE: HIG). But one ever-growing small-cap is poised to make a name for itself.
 
Meet American Physicians Service Group, Inc. (Nasdaq: AMPH), an Austin, Texas-based $130 million company that not only provides brokerage and asset management services to individuals and institutions, but also provides insurance services including medical malpractice insurance. The insurance services segment provides financial management service to banks and insurance companies that provide liability insurance to doctors, while its financial services segment provides brokerage, asset management and investment advisory services to individuals and institutions.
 
Though the company has been around since 1974, American Physicians Service Group is not exactly a household name. But with a strong second quarter under its belt and glowing future prospects, that is bound to change. The company owes much of its recent success to smart management. The ambitious firm is expanding from its rather modest local roots thanks largely to a savvy acquisition. In April 2007, the company completed its acquisition of American Physicians Insurance Company (API), a firm whose operations it had managed since the mid-1970s. 
 
In the quarter ended June 30, APS increased both revenue and earnings, reporting a net income of $12 million, or $2.37 a share, compared with $598,000, or $0.21 a share, in the same quarter last year. Revenues more than tripled to $29 million, compared with $8 million over the same period in 2006. In addition, the company posted a gain of $2.3 million related to the API merger. 2007 EPS projections of $3.38 are more than 300% higher than 2006 results.
 
"This is our first quarter to report combined results with API . . . and those results have exceeded our expectations. Due to continued positive claims trends, we lowered claims reserves and related reinsurance reserves by $14.1 million in aggregate this quarter. However, we remain very conservatively reserved at the upper end of the actuarial range," Chairman Ken Shifrin said in a statement. "In addition to favorable development in reserves, our policyholder count continues to increase. During the twelve months ended June 30, 2007, our total policyholder count increased by 462 to 4,802. This is largely due to our favorable 90% retention rate in 2007. Though the market continues to be characterized by rate pressure, our profit margin remains strong due to continued favorable trends in the frequency of claims.”

Shifrin also said that American Physicians financial services segment has performed very well, with revenues up 46% for the first six months of 2007, compared with the same period last year, and pretax profits up an impressive 68% in that same time frame.
 
Wall Street has taken notice.