Dear Mr. Berko: In 2009, we took a huge gamble and bought 4,000 shares of Genworth at $1.95 a share, and it's now $4.50. We should have sold this stock when it was in the teens but didn't because a trusted friend said it would recover and trade in the $30s as it did several years ago. My husband wants to sell the shares and put the money into 850 shares of AXA Equitable, which sell for $21 each. I'd prefer selling half of our Genworth shares and buying 400 shares of AXA Equitable. I think Genworth could sell in the high teens. Please tell me about AXA Equitable, which just came public. Should we sell all or part of Genworth? — FS, Vancouver, Wash.
Dear FS: The Equitable, a life insurance company founded in 1859, was one of the most respected insurance companies in the U.S. AXA is the French life and annuity giant that bought American-owned The Equitable in 1991, calling Paris its home. AXA began streamlining some of its American business, including AXA Equitable, in May. Now this old life insurance company has come back home as a mid-May IPO at $20. AXA will use the proceeds from the initial public offering of AXA Equitable Holdings Inc. (EQH-$21) for share buybacks and to purchase XL Group, one of the biggest property and casualty insurers in the world.
EQH posted revenues of $12.5 billion last year and earned $1.55 a share, and today it trades at 13.5 times earnings. EQH has 561 million shares outstanding, plus $8.61 in American cash backing each of those shares, which trade at $2.95 below their $23.95 book value. Meanwhile, such well-known and successful insurers as MetLife, Prudential and Lincoln National trade at 20 to 50 percent above their book values. EQH doesn't pay a dividend, but I'd be willing to wager and give you odds that EQH will pay a dividend by early 2019. And I'd be terribly disappointed if that dividend were less than 80 cents a share. Also, I'd be abjectly disappointed if the stock failed to trade above $25 in the next dozen months.
EQH's life insurance, annuity and money management business has performed well and put some big-dollar revenues on the books in the past two years. Meanwhile, a reader and a close acquaintance who is one of the bigger big shots at Prudential tells me that the "life insurance industry should have a very positive year" and that most life and annuity companies "should post impressive earnings growth in 2018." And he believes that 2019 could be a better year for the industry than this year. He told me he expects that "an improving economy, low unemployment, higher interest rates and lower taxes will translate to improving revenues and better profitability." And he's also impressed with EQH's ownership of AllianceBernstein, which has over $600 billion of assets under management. This knowledgeable professional believes that the Dow Jones industrial average will be up 11 percent this year, that the S&P 500 will be plus 13 percent and that AllianceBernstein could contribute 35 cents per share to 2018 earnings. And he thinks EQH could report $13 billion in revenues, post earnings of $2.05 per share and improve book value to $24.25. He also believes that EQH will announce a quarterly dividend of 25 cents a share. He said he'd rather own AXA Equitable stock than Prudential any day of any week. So, call your stockbroker as quickly as a bunny and buy the stock.
Sell 3,000 of your Genworth (GNW-$4.50) shares and buy 600 shares of EQH. GNW's income has been declining for a dozen years, and long-term debt has reached the precarious level. In 2016, China Oceanwide Holdings Group offered $5.43 in cash for each GNW share. The deal was expected to close in October of that year. However, Congress didn't approve the sale because of military concerns about access to Americans' personal information. China Oceanwide has filed four separate applications, hoping additional changes will make the merger palatable to the U.S. That GNW trades well below the $5.43 buyout price also suggests there's no deal.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.