Jim Cramer's Best Blogs
NEW YORK ( TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:
- why the bears are wrong on Radian; and
- why it makes no sense to rotate out of quality stocks into cheaper names in the same sectors.
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Radian Has Room to Run
Posted at 3:08 p.m. EDT on Friday, March 15
Not up enough. That's how I feel about Radian (RDN) after I spoke to CEO S.A. Ibrahim last night on "Mad Money." This mortgage insurer has had a fabulous run, up recently from $2, but I don't think it is done.
Here's the deal right now. Radian is the No. 1 mortgage insurer in the country. It's biggest competitor isn't a company, it's the Federal Housing Administration, which is under a mandate to get out the business.
The issue had been that there's a ton of old business for which Radian is under-reserved. That was the rap on them from Barron's, which called the company a house of cards.
I think that the new, good business, which is coming fast and furious, will offset the old, poorly underwritten business much sooner than most expect.
More importantly, the company's not under-reserved at all. The reason I think you should buy this stock now is that I bet the company is about to settle a ton of delinquencies that are three years and older, the bad claims. There are about 20,000 loans that are in dispute and they are mostly underwritten by the now-defrocked Countrywide. You could argue that these loans were totally questionable -- some would charge fraudulent -- from day one. Any settlement for these loans may come in at a very low number, maybe at $10,000 a loan, a much lower level than the $30,000 for which they are reserved.
That's important for two reasons:
- The bears think that the $30,000 reserve is way too low.
- That would allow it to increase its statutory capital. Don't forget that this company just sold 34 million shares for $8 to shore up its balance sheet.
What makes me optimistic that the bears will be wrong and something like $10,000 per claim may be a realistic settlement? Recently, competitor MGIC (MTG) just settled almost 9,000 delinquent loans for $5,000 a claim vs. the $70,000 per claim that Countrywide was asserting. Although Ibrahim could not comment on that possibility, I think it is a very reasonable bet that it could happen and that the remaining bears in the name will be forced to cover.