For several months, United Fire & Casualty (UFCS) has been in the dumps. I’m fairly certain it’s still paying for the catastrophes of last year. UFCS is by no means the best underwriter of risk or the best investor of its premiums, but I think it has staying power. UFCS was founded in 1946 and has done well since then. (click for larger size)
Just by looking at the chart, you can see that UFCS has undergone about three price corrections of similar magnitude to its most recent price correction. After each of the three previous times, the stock has rebounded nicely over time.
Here is some 10-year data for UFCS:
I’m not a big fan of those high combined ratios (i.e., unprofitable underwriting), but UFCS currently has a P/B ratio of 0.7 and its 10-year average is 1.2. On a simple P/B ratio-based valuation, UFCS is trading at a 30% discount. If we assume UFCS were to trade at a more normal 1.1 P/B ratio, that means UFCS is now at a 40% discount.
I have no idea how long it will take UFCS to reach its intrinsic value, but I feel pretty confident that the true worth of the company will eventually be reflected in the stock price.
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