2 of the Cheapest Stocks You'll Ever Find: BRK, MET, HIG

"Insurance is sold, not bought."

This old saying may be true from the consumer side. From the shrewd investor's point of view, however, it's an entirely different story. Legendary value investor Shelby Cullom Davis, for instance turned $50,000 into a fortune of $800 million dollars by buying the stocks of deeply undervalued insurance companies during the dull markets of post-World War II. And if you're a Warren Buffett stalker, then no one has to tell you about the obscene wealth he has created for himself and fellow Berkshire Hathaway (NYSE: BRK-B) shareholders through the company's ownership of auto insurer GEICO and other insurance operations.

Despite the fact that Davis had a bit of an edge, since got his chops when he served as deputy superintendent of insurance for the state of New York, the pattern with insurance companies and successful value investors is clear. And the common denominators for a winning investment in the insurance segment are cash and patience. Well-run insurance companies have the cash, while a successful investor supplies the patience.

With this in mind, I went looking for undervalued insurance companies that have the potential to turn the money of patient investors into small fortunes. My search led me to two companies MetLife Inc. (NYSE: MET) and Hartford Financial Services Group (NYSE: HIG). Both are staid names in the U.S. insurance industry, both tracing their roots back to the 19th century.

When the housing bubble burst and the wheels of the financial system fell off in 2008-2009, most financial companies took it on the chin. MetLife and Hartford weren't spared. Hartford shares tumbled more than 90%. MetLife outperformed, breaking through $12 during that time, though shares also took a sharp hit.

But both stocks have recovered nicely since then. MetLife trades for about $32 a share, while Hartford is knocking on $18 a share. And their price-to-earnings (P/E) multiples are still priced for the bargain basement. How cheap? How do 30–40% discounts to the S&P 500's P/E multiple of roughly 16 sound? At these levels, the patient value investor could be rewarded handsomely.

Here's a more detailed look at each of these insurers...

MetLife
Market cap.: $33.8 billion
P/E multiple: 6.0

Leveraging its brand association with everyone's favorite beagle, Snoopy, MetLife has a sturdy ship to sail through the uncharted waters of today's market environment. While MetLife's property and casualty business (P&C) contributes only $3.6 billion(about 7%) to the company's $52 billion revenue mix, the life and retirement product business is much more important to the company's bottom line. As a result, MetLife has decided to focus on capturing a greater share of the retirement-savings business, thanks to innovations in its fixed and variable annuities, as well as other investment products. The company is also expanding its core business through acquisition. Most recently, it purchased the life and annuity business of The Travelers Cos. Inc. (NYSE: TRV).

The company is also tightening up internally. Owning a federally-chartered bank helped MetLife through the dark days of the panic of 2008 (allowing them access to the Federal Reserve's discount window to ensure liquidity), but things have improved now and it doesn't make much sense to hang on to such a low-return, high-risk business. As such, MetLife has announced the sale of MetLife Bank's depository and forward mortgage businesses.

MetLife is also sitting on $17.4 billion dollars in cash. Eventually, it'll have to do something with all that money. The three best choices are returning it to shareholders in the form of a dividend increase, buying back shares or using it for more acquisitions. I'd like to think the first two are the most probable options.

MetLife's shares trade at about $32, with a forward P/E ratio of about 7 and a 2.2% dividend yield. EPS in 2012 are projected to be $5.15. With a mere 15% P/E expansion to just eight times 2012 earnings, a 12-month price target of $41.22 is reasonable. Adding in the dividend, this comes to a 27% total return.

Assuming the stock hits this conservative target, shares would still trade at an 8% discount to book value.

Hartford
Market cap.: $7.8 billion
P/E multiple: 7.6

Hartford is one of the nation's largest commercial insurance writers (44% of $22.3 billion in total revenue), which includes P&C as well as group benefits. Owning its own niche seems great, but when its reserves are taking hits due to P&C losses, well, it doesn't look so great any more. Hartford has taken accident and catastrophic losses of $127 million for the current year. This has put a constraint on capital going forward, although the company has the necessary reserves to cover this beating.

At the same time, Hartford has many factors working in its favor. The most notable is the high level of institutional ownership of the company's shares. About 89% of all outstanding shares are held by mutual funds and other institutions, with the largest being hedge-fund wizard John Paulson's firm -- Paulson & Co. -- with a 9.1% stake.

Another strength of this stock is Hartford's penetration into small businesses. The company plans to ramp up its cross-selling efforts to increase distribution of its wealth-management and retirement products to its commercial customers. Wealth management comprises 20% of the business, but Hartford wants to see this contribution grow. Analysts also suggest that a likely scenario would be for Hartford to either spin off or sell its P&C business outright. This means there is value just waiting to be unlocked.

Shares are already just plain dirt cheap, trading at a 35% discount to their tangible book value. Hartford shares trade at a forward P/E ratio of 5.6 and a dividend yield of about 2.2%. A 12-month price target of $23 is achievable with a 20% P/E ratio expansion. Factoring in the dividend would bring the total return to 33%. Again, like MetLife, shares would still have a low single-digit earnings multiple and trade a 46% discount to their tangible book value.

Risks to Consider: The macro risks to Hartford and MetLife are the usual suspects: rock-bottom interest rates that hamper the performance of the companies' substantial investment portfolios, turbulent and uncertain financial markets and economies, and an even more unpredictable regulatory environment. Specifically, the large commercial mortgage-backed securities position in Hartford's portfolio is low-quality, which leaves the company vulnerable to further credit writedowns. The specific risk MetLife faces is due to stubbornly low-interest rates which hinder its ability to maintain attractive rates on the living benefits of its annuities and retirement products.

Action to Take --> Beat-up insurance stocks with low single-digit P/E ratios won't scream up to double-digit territory overnight. Deep-value investing, especially in the insurance sector, is a waiting game in which only the very patient investors are likely to win.

Hartford is the more aggressive pick, as its headwinds are a bit stiffer than MetLife's, but the company has turned in consistent return on equity of 11%. This combined with the potential sale of its P&C business and other assets would serve as a catalyst. Of the two, MetLife looks to be the stronger contender.

Steve Forbes: The Dollar Will Be Re-Linked To The Dollar

Craig R. Smith - Inflation Deception - Coast To Coast AM - 16.11.2011

Craig R. Smith is an author, commentator and popular media guest who has served as CEO of Swiss America for more than 25 years , author of "Crashing the Dollar: How to Survive a Global Currency Collapse," a hot new book which is already making a powerful impact on the public.Craig argues that if the Obama Administration wants to help America, the president will start speaking positively about our country and stop the "false choice" rhetoric of convincing the American people that tax breaks for the rich would mean no healthcare for grandmothers. The time has come to close the loopholes, cut taxes by creating a fair tax system and allowing private business to do what it does best, create jobs.We're getting ready to face a 10-30 year period of difficult times in America, as we deal with the last 40 years of "massive increases of personal, government, sovereign debt," he said. "The American people have been deceived to believe we can create money out of thin air, and there'll never be a day of reckoning,"

Platinum: The “Cheapest” Precious Metal…

Historically, precious metals (such as Gold & Silver for example) had an important role as currency, but are now regarded mainly as investment and industrial commodities. Gold, silver, platinum, and palladium each have an ISO 4217 currency code.
With the ongoing crises in the Western World, precious metals are regaining their role as “currency”, as they cannot be printed out of thin air unlike fiat money.

The best-known precious metals are the coinage metals gold and silver. While both have industrial uses, they are better known for their uses in art, jewellery and coinage. Other precious metals include the platinum group metals: ruthenium, rhodium, palladium, osmium, iridium, and platinum, of which platinum is the most widely traded.

The demand for precious metals is driven not only by their practical use, but also by their role as investments and a store of value. Historically, precious metals have commanded much higher prices than common industrial metals.

These days, gold is trading near all-time highs, while platinum is trading about $700 below its all-time high reached in 2008.
Since 1972, Platinum traded at about 1.35 times the price of Gold on average. Right now, Platinum is even cheaper than gold, trading at only 0.92 times the price of Gold. As we can see in the chart below, this is a rather “rare” situation. It only happened in the early 80′s and for a short time in 1974. In 1972, 2000 and 2008, it even traded as much as 2.30 times the price of Gold (monthly basis).

Based on this ratio over the last 40 years, we can say that Platinum is “cheap” relative to Gold.

I also made the calculations for Platinum relative to Silver.

Over the last 40 years, Platinum traded at about 76 times the price of Silver (monthly average). Right now, it is trading at only 47.26 times the price of silver, far below the historical average ratio. In 2003, it even traded as high as 150 times the price of Silver.
In 1979 however, it traded as little as 20 times the price of Silver, but that was rather an “exception”, as silver jumped from $6/oz to $48.70/oz, as the Hunt Brothers tried to corner the silver market. Taking out this exception from the chart below, I think it’s fair to say that Platinum is also cheap compared to Silver:

A similar thing can be said about Platinum relative to Palladium.
Over the last 40 years, the average Platinum-to-Palladium ratio was 3.17.
Right now, it is 2.53. In 2001 however, it was a low as 0.60 (Palladium was trading much higher than Platinum, because of rumours that the Russian Stockpile of Palladium was almost depleted).

Leaving this “exception” of 2001 aside, I think it’s fair to say Platinum is cheap relative to Palladium, based on this ratio of the last 40 years:

Now let’s have a look at the “Gold-to-Silver” ratio. Many argue that the Gold-to-Silver ratio is headed back to 15, a level not seen since 1979. However, as explained above, this move in silver was rather “exceptional”, as the Hunt Brothers tried to corner the market.
When we look at the historical average of the Gold-to-Silver ratio over the last 40 years, we can see that the ratio now (51.60), is just slightly below the monthly average of the last 40 years (56.42). This means Gold is not cheap, nor expensive compared to Silver.

When we look at the daily Gold-to-Silver ratio going back to 1920, we can see that the daily average (52.32) doesn’t differ that much from the monthly average of the last 40 years (56.42). This tells me that 55 is a good estimate of the average Gold-to-Silver ratio.
In the chart below, we can see that Gold was expensive compared to Silver when the Gold-to-Silver ratio was higher than 80, and that Silver was expensive to Gold when the ratio dropped below 30′ish. In April earlier this year, the ratio dropped towards 30, meaning Silver was getting expensive relative to gold, and has now reversed sharply, back towards its 90 years average.

Based on the charts in this article, we can conclude that:
* Platinum appears to be cheap relative to Gold
* Platinum appears to be cheap relative to Silver
* Platinum appears to be cheap relative to Palladium
* Platinum thus appears to be the cheapest Precious Metal discussed in this article.

However, this all doesn’t mean Platinum is CHEAP.
I am just saying that when we look at historical averages, platinum looks cheaprelative to the other precious metals.
When the precious metals bull market would come to an end, it is very well possible (and even likely) that Platinum will drop along with other Precious Metals.

However, if this Precious Metals Bull Market continues over the next couple of years, I think one would do well by diversifying some of his/her assets in Gold/Silver into Platinum.

One way to trade this ratio would be to Buy Platinum, Short Gold. By doing this, the investor reduces the exposure to “Precious metals” (as the historical correlation between Gold and Platinum has been fairly high over time, so if gold goes down, platinum usually goes down, and if gold goes up, platinum usually goes up as well). However, when looking at the Gold-Platinum ratio, we could expect platinum to outperform gold in the future. It could be that both gold and platinum go down, but then we could expect gold to go down more than platinum. If both gold and platinum keep grinding higher, we could expect Platinum to rise more than gold. In fact, there are several possible scenarios that could bring the ratio back to “normal” levels:

Chart courtesy stockcharts.com

Investors have different options to get exposure to Platinum:
- invest in the physical metal by buying Platinum coins/bars
- buying an ETF that tracks the price of Platinum (PPLT for example)
- stocks of companies that mine Platinum as one of their main products (Anooraq Resources, AngloPlatinum, Stillwater Mining, etc to name a few)

What is LIBOR Telling Us? (Prieur’s Podcast)

Forget Oil... This Could Be the Biggest Story in Energy: CHK, CVX

Last week, I told you where to find 57% of America's best income stocks.

For those who didn't read that article, my research team found that 12 of the 21 best-performing American income stocks of the past decade came from a single sector -- energy. (You can get the entire list of the 21 income stocks and their performance here.)

The success of energy stocks in the past decade makes sense. After all, in the unpredictable world of investing, energy consumption just might be the only sure thing. We've only had one annual decline in the past 30 years -- and even that was a mild 1.1% dip in 2009, as the global economy regained its footing.

But what if I were to tell you that right now, the vast majority of energy users are overpaying for it?

It's a crazy thought. After all, who would pay $3.50 per gallon of gasoline when you can go across the street and pay $3.25?

I certainly wouldn't and I doubt you would either. When given the choice of two similar goods at different prices, consumers gravitate toward the cheaper one almost every time.

But consumers are also set in their ways, as are many business executives. And over the decades, we've grown accustomed to oil as one our chief energy sources. So accustomed, in fact, that we're now overlooking a cleaner, plentiful alternative that is about 75% cheaper.

The graph below tells the story:

This graph shows the price of crude oil versus the price of an equivalent amount of energy from natural gas during the past three years.

A barrel of oil contains about six times the raw energy content of a thousand cubic feet (Mcf) of natural gas. So all things being equal, with oil prices about $99 per barrel, natural gas should fetch about one-sixth as much, or $16.50 per Mcf.

But thanks to horizontal drilling and fracking technologies, the United States is now awash in accessible, cleaner-burning natural-gas resources. And the resulting flood of natural gas has created a surplus, causing prices to collapse.

Right now, natural gas prices are currently languishing at $3.80 per Mcf. Multiply by six, and you see that it costs less than $25 to get an equivalent amount of energy from natural gas as you get from a barrel of oil. So on an energy-equivalent basis, natural gas is roughly one-fourth the cost of oil.

Natural gas isn't just readily available at a 10% or 20% discount to oil -- but more than 75%. These economics are simple but powerful. It's hard to justify paying $1 for an energy source when you can buy something comparable for $0.25.

And in fact, we're already starting to see a major shift toward the use of natural gas.

For the first time in 15 years, there's currently an expansion wave in petrochemical manufacturing (which uses natural gas as a feedstock). We're also beginning to see many fleet owners convert their cars and trucks to vehicles that run on compressed natural gas (CNG) transportation fuel -- which is about $2 cheaper per gallon than ordinary gas or diesel at the pump.

And as for electricity, the U.S. Department of Energy is forecasting that natural gas will fuel 90% of the additional power-generating capacity scheduled to be built in the next two decades.

But the real opportunity for energy investors rests in something called liquefied natural gas (LNG).

By chilling natural gas to -260 degrees Fahrenheit, production companies can liquefy and compact the energy source, making it economically feasible to ship large quantities overseas.

Now U.S. oil and gas companies can ship their excess natural gas as LNG to foreign markets -- where natural gas is scarcer and widely commands prices of $10 to $15 per Mcf, and in the case of Japan, nearly $20 per Mcf.

Events have already been set in motion to allow our cheap shale gas to be liquefied and sold abroad. Needless to say, selling billions of cubic feet of gas for triple the price they might get here in the U.S. has major producers like Chesapeake Energy (NYSE: CHK) seeing dollar signs. And there are plenty of hungry customers out there.

Just a few years ago, only 17 countries imported LNG worldwide. Today, this number has risen to 25 -- not counting Poland, El Salvador, Costa Rica and many others that are planning to build LNG import terminals.

As a result, global annual LNG production has spiked 60% since 2005. And with an estimated $200 billion in capital being poured into expansion projects worldwide, this trend isn't stopping anytime soon. Case in point: global giant Chevron (NYSE: CVX) recently pledged to put 40% of its investment capital into new LNG projects in the next decade.

I expect the use of LNG will become more widespread. There's already been a flurry of headline-grabbing deals as savvy industry execs wake up to the potential.

Action to Take --> Keep your eyes on what's going on in the energy patch. Right now, the price of natural gas relative to oil is way too cheap to ignore... and the growth in LNG is still in the early stages. It's only a matter of time before more and more investors start to catch on.

$$$ THE NEW US DOLLAR IS UNDERWAY reports Bob Chapman

$$$ THE NEW USDOLLAR IS BEING PLANNED. INFORMATION HAS BEEN SHARED WITH LARGE AND MIDSIZED US-BANKS. ITS LAUNCH IS EXPECTED TO OCCUR IN 12 TO 18 MONTHS. EXPECT A LARGE DEVALUATION AND VANISH OF MUCH WEALTH. THE OLD (CURRENT) USDOLLAR WILL NO LONGER SERVE AS GLOBAL RESERVE CURRENCY, NOR THE STANDARD FOR GLOBAL TRADE SETTLEMENT. BOB CHAPMAN REPORTS A NEW USDOLLAR IS UNDERWAY.



$$$Bob Chapman has reported some potentially important news. Whether its timetable is soon or distant, nobody knows since the path traveled is an event driven scenario. He broke the story three weeks ago. He claims to have received the information directly from people at the top of the banking profession, but from the leading mid-sized banks. He does not have a line of information from the top major banks. These mid-sized executive bankers attend meetings directed by the USFed and they pass details to Chapman. He reports, "The big US banks are being told to clear safe secure storage, because they are getting ready to print a new currency. It is not the Amero. It is a new Dollar, probably different from what you have already. It is underway. It may not be in the printing stage yet, but the plans are there. The USFed is expecting, as is the USDept Treasury, that the USDollar is not going to be the reserve currency of the world in about a year and a half, maybe less." The report is not specific, but the blueprint is clear that a response is planned for the death or rejection of the USDollar. See the Chapman weblog (CLICK HERE).The Jackass reaction follows. Plans are being shared with mid-sized US banks, since they are subservient. They talk to mere mortals like Chapman since they too are mortals, ranking minions in the banking industry. A new USDollar is due to launch in 12 to 18 months, the American response to crisis. A very big devaluation comes in my opinion, complete with nasty price inflation in the domestic USEconomy. Built in will be considerable debt writedowns, perhaps directly applied, probably forceably to the foreign creditors with enormous resentment. Tremendous complications are involved, since the USDollar is used in global contracts and commerce, like trade settlement. The end of the USDollar is near. The beginning of the Third World Dollar is fast approaching. Its birth will be the final cold water in the face of Americans, all too sleepy for years, as they will awaken in horror. They will see their pensions, life savings, and more perhaps cut in half. Ramifications and impact will be broad, as a ticket to Third World will be issued and used without a choice. The initial devaluation might be 30% to 35%, but more loss is assured after time passes.

My forecast is for a follow-up devaluation of another 15% to 20% after a period of time, like six to nine months. The deficits are too great, for both trade and the government budget. The hemorrhage will deal crippling blows to the new USDollar, which will not be supported by the printing press any longer. If in effect, the new USD will not be readily accepted for trade, since it will be toxic, a true reflection of the horrendous fundamentals for the USEconomy and USGovt. If in effect, financing the USGovt debt will not be easy, since the printing press will be mothballed. The domestic US interest rates will rise past 10% quickly, matching the true rate of price inflation. The price of food will double quickly, gasoline too, and all utilities. The reckoning will result in total 50% USD devaluation down the road 2 or 3 years. The overall impact from birth of a new USDollar is its ticket to the Third World, a tourniquet on the US national neck. Some caution must be given concerning Bob Chapman. He is bold and intrepid, but half of his shocking calls have been nothing more than hot wind that passed to the desert hills. For three years, he has been warning of bank shutdowns and bank holidays. The Jackass has expected them eventually, but Chapman gave at least three such wrong calls. He has been alarmist at times, but his calls are surely contingency plans in the shadowy conference rooms where the elite meet and the security agencies map out logistics. At times Chapman seems to lack some comprehension of practical implications. But he does have some deep sources. The best approach for this information is to plan on it in the future, but that door might not open for some time. The timetable will be dictated by events, which are unquestionably turning more toward chaos and disorder.