One stock that that caught my eye recently is James River Group Holdings (JRVR).
James River Group is a Bermuda-based specialty insurance company, focused on the property and casualty segments for small- to medium-sized businesses. In 2013, 70% of the company’s gross written premiums originated from U.S. consumers buying property and casualty insurance through a state-regulated market. It also sells businesses casualty insurance and provides reinsurance to other insurance firms.
The company was founded in 2002 by J. Adam Abram, who remains the CEO and chairman. At the time of its first initial public offering, management invested a significant amount back into the company through the directed share program. Abram invested $5 million, and the chief operating officer, Robert P. Myron, invested $1 million. In addition, two other executives invested a total of $1 million in the offering. This showed an alignment in incentives, and a strong commitment from management to increase shareholder value.
James River Group went public for the first time in 2005. It was later taken private in 2007 by the hedge fund D.E. Shaw, which remains a majority holder in the company, with 53.3% ownership.
Shaw floated James River Group as a public company again in December 2014, and it began trading near $21 per share. Since then, shares have been steadily trending higher and are now sit around $27, reflecting solid earnings reports that show strong growth and progress in the operating business.
Insurance is a hyper-competitive business, making James River Group’s Bermuda base particularly valuable. By locating the company overseas, James River Group is able to bypass paying many U.S. corporate taxes. This advantage allows for room to undercut the margins of competitors, whose business models are negatively impacted by tax burdens.
During the quarter ended March 31, diluted earnings per share rose 11.1% year-over-year, from $0.36 to $0.40. Tangible book value increased 2.1%, and would have climbed 3.1% if it weren’t for the dividend payout. For all of 2015, James River is expected to earn $1.99 per share on revenue growth of 9.3%, giving the company an unchallenging P/E of 13.6.
After James River Group reported results on May 6, several brokerages upgraded their price targets, sending shares to new highs. The company is due to report its second quarter earnings today, Aug. 5, after the market closes, which could act as another catalyst to take shares to the next level.
JRVR pays a solid dividend of $0.16 per quarter, which amounts to an annual yield of 2.3%. The company has great potential in the coming years as the business continues to grow profitably.
Bottom line: James River Group is a growing specialty insurance company operating in a profitable niche with attractive long-term growth prospects. Insider ownership, recent bullish analyst coverage and the Bermuda advantage position JRVR shares for new highs.
Buy JRVR at $26.85 limit, good till canceled. I have an initial short-term target of $29.75 for the shares.
Jon Markman writes a daily trading newsletter, Trader’s Advantage, and CounterPoint Options, a service geared towards helping individual traders make steady, consistent profits with the VIX. Follow him on Twitter for his latest take on markets and innovation, and be sure to check out his Top Stock for 2015 here.
P.S. My colleagues, John Jagerson and Wade Hansen, are taking profits in the Etsy (ETSY) puts they recommended recently, after the company revealed that expenses are growing much faster than expected. Unfortunately for ETSY, the firm is under pressure from a new Amazon (AMZN) marketplace for handmade and custom goods, and sales growth is not enough to offset market pressures. The stock dropped to its post-IPO lows on the news, down more than 22% at Wednesday’s open, and may find some support at this level.
