Which Are Better, Bank Stocks or Insurance Stocks? | Where the Money Is - 12/26/13 | The Motley Fool | Summary and Q&A

TL;DR

In this episode, hosts Matt Copenheffer and David Hansen answer listener questions on various topics related to investing and finance.

Key Insights

• ⌛ Earnings and dividend payouts for companies can be influenced by one-time charges and should not be solely relied upon for dividend projections.
• 🏦 Personal familiarity and valuation opportunities can influence investment preferences between insurance company stocks and bank stocks.
• 💁 PMI companies suffered losses during the housing crisis but also received settlements from banks for inadequate information on mortgages.
• 🥹 Berkshire Hathaway's choice of bank holdings may be based on comfort with business models and desired exposure to different areas of the financial sector.

Transcript

we've got your questions and we're going to answer them you're in the right place folks because this is where the money is welcome to the show I'm Matt copen heffer this here is David Hansen and today is the all mailbag show we have an email address it's wtmi fool.com uh all of our great listeners have been sending us so many questions and we they'... Read More

Questions & Answers

Q: Does Armor Residential's dividend payout meet the required 90% per year?

Armor Residential's earnings were inflated in 2013 due to a one-time charge, and their projected dividend payout for the next year is in line with their earnings. Therefore, they are not drastically underpaying dividends.

Q: Should I invest in insurance company stocks or bank stocks for the next 10 years?

One host prefers banks due to their familiarity and valuation opportunities, while the other host leans towards insurance companies, citing their predictability in creating value and confidence in their management.

Q: What happened to private mortgage insurance (PMI) companies during the housing crisis?

PMI companies, such as Radian and Genworth Financial, suffered losses during the crisis, but also obtained settlements from banks for inadequate information on mortgages. These companies have been beaten up but have seen some recovery in recent years.

Q: Why doesn't Berkshire Hathaway own JP Morgan despite Warren Buffett's personal ownership?

It is likely because Buffett is more comfortable with the business models of the banks Berkshire currently owns, which have more predictable cash flows. Additionally, Berkshire does have exposure to other banks, including Goldman Sachs and Bank of America.

Q: Are tradable TARP warrants worth considering, and where might there be value?

Tradable TARP warrants act as call options, providing the right to buy a bank's stock at a predetermined price in the future. While they offer potential upside, they also involve risk. The hosts mention owning tarp warrants for PNC and Capital One, but highlight the limited downside for Capital One compared to others.

Summary & Key Takeaways

• The hosts discuss Armor Residential and clarify its earnings and dividend payout, highlighting a one-time charge that affected their numbers and emphasizing the importance of not solely relying on previous year's earnings for dividend projections.

• They compare their preferred choice between a basket of their favorite insurance company stocks and bank stocks, with one host leaning towards banks due to their familiarity and valuation opportunities.

• The hosts address the role of mortgage insurance companies in the housing crisis and explain that while these companies did face losses, they also were able to obtain settlements from banks for inadequate information on mortgages.

• They analyze Warren Buffett's preference for owning certain banks and discuss the predictability of cash flows and risk profiles of different companies in the financial sector.

• The hosts provide an overview of tradable TARP (Troubled Asset Relief Program) warrants, explaining that they are call options that grant the right to buy a bank's stock at a specific price in the future, and offer their views on the potential opportunities and risks associated with these warrants.