"Financials will continue to make gains in 2011" says Vincent Rooney (CEO) of Rooney Gallaghers

Jan. 21, 2011 - PRLog -- I am absolutely certain that this year will show even more growth in the financials. I will go further to say I would expect Chinese banks in particular will offer some good strong gains. Along with banking sector I expect the insurance companies will also continue to see growth. The industry has been hit, hard and for many reasons. For one, it makes a significant amount of profit by investing its float, and like every other investor, the industry lost a pile of money in the financial crisis. Being so closely affiliated with the banks is what really caused them the biggest blow. With so many defaulting on mortgages and business loans this left the insurance companies with no place to hide.

But both industries performed well last year and I expect more of the same again for this year. I do have somewhat mixed feelings about recommending bank stocks, purely because I place a lot of the blame on the banking sector for the worldwide recession. That said you should never allow emotions in the way of a good business decision. But a stock to take notice of not in banking and one I would have absolutely no doubts about its growth. It’s a small company by the name of Homeowners Choice Inc.( HCII) Nasdaq is a Florida-based insurer insuring local properties and run by long-time residents with extensive industry experience. I actually think it will beat the market analysts’ predictions easily

HCII is capitalized at a tiny $51 million and is growing, but these are the investments most just totally ignore and that’s why the savvy doesn’t follow the crowd. There is much to like about this company which was founded in 2006. In addition to the nice yield, the company increased earnings over 22% in the last year, has a trailing P/E of around 12 and is projected to go down two points in the next twelve months based on the January 11th stock price. If this company was older and larger it might even be worthy of a Triple A rating. The company has an ROE and ROIC exceeding 25% and no debt. The price-to-cash-flow ratio of 5.3 is about half the market average. The P/S and P/B are even lower at 0.82 and 0.85 respectively.

Finally, here is something that I found very unusual -- insiders have been buying and none of them have been selling as far as I could determine. There are no "planned sales" or sales of exercised options -- just buying and keeping. I think the gradual improvement in the Florida residential market, and even foreclosures that cause property turnover, work in favor of Homeowners Choice growing its business. Management has greatly reduced claims risk by passing much of it on to re-insurers. I do not know whether HCII will ever expand out of state, merge, be acquired, or become 20 times larger. However, it will not stay where it is today, and at its current size with the job management has been doing the sky is the limit. If there is any downside, I have not been able to find it and that is not because I haven’t tried.

Another stock well worth considering is a very high quality company health sector, an industry that has had a hard time gaining much traction in the past few years. All the talk of changes in health care programs and insurance, patent expirations, recalls, the economic global slowdown and more have been a heavy burden.

Merck & Company Inc. , a large cap DJIA component, is paying a very healthy yield with a modest P/E ratio of 11 and heading down. I don't consider it a screaming bargain, but rather an undervalued stock with proven management. The company has kept the debt level in check while producing a return on equity for shareholders of 40%, along with 47% net profit margins. The company has been floating at the mean level between its 52-week low of $30.70 and its high of $41.56 for months with little volatility. I expect MRK to be a solid choice and should surpass last year’s high with $43.80 a realistic level.

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