Genworth Has Strong Price Momentum, Is Fundamentally Undervalued
Disclosure: I am long GNW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
SA author Hawkinvest indicates it is time to sell Genworth (GNW) after Genworth's recent strong price action. I disagree. The fact that Genworth has strong upward price momentum is not a bad thing, it is a good thing. Although Genworth may pull back a little in the near term, medium and long term Genworth is looking technically strong and Genworth is fundamentally undervalued as it is selling at just .25 to book, 1.1 to cash and 2.7 to positive cash flow, and its forward price to earnings based on consensus analyst earnings estimates is just 6.6. All these things taken together make Genworth a strong buy.
I agree with Hawkinvest that Genworth was much cheaper at around $4 per share but I disagree that Genworth has now somehow gotten expensive because it has doubled off its recent lows. Genworth is still dirt cheap despite its recent run-up to around $8 per share. I also disagree with Hawkinvest when he states that Genworth's strong price action is a bad sign. Quite the contrary, I believe that strong price action and price momentum are good signs and that an investor will make more money buying stocks at 52 week highs than buying stocks at 52 week lows. Never forget, the trend is your friend. Do not fight the price action. If a stock is trending upward, ride it up for all it's worth. Correlatively, if a stock is trending downward, avoid it, or short it, because the trend is likely to continue. Price action is the ultimate arbiter of truth in the markets, regardless of what the analysts and pundits argue about what the price of a company should be. Of course use stops in case the trend reverses, but that is less likely than that the trend continues. It is Newton's fundamental law of motion that an object in motion tends to stay in motion and tends to stay moving in the same direction unless acted upon by some outside extraneous force. So use the inertia and the momentum of a stock in your favor rather than trying to fight it. READ FULL ARTICLE HERE