An Attractive, But Boring, Sleeper Stock
Well, we’ve talked a lot about both boring and exciting businesses in this column. You can easily make money from both, if you own the right stocks.
Of course, you know about Huron Consulting (NASDAQ/HURN) which is a great example of an uninteresting business generating excellent returns for stockholders.
Another company exuding the same attractive characteristics as Huron Consulting is AMERISAFE Inc. (NASDAQ/AMSF). This company sells workers’ compensation insurance to small and mid- sized employers in industries such as construction, trucking, logging, agriculture, oil and gas, maritime and sawmills. The company sells its insurance products mainly in the Southeast, including 27 states and the District of Columbia.
Before you move on out of boredom, just think about how well Huron Consulting did. The stock doubled in just over six months’ time, even though the consulting business is about as uninteresting as it gets.
The insurance business is also boring, but when market conditions are right, you can make a lot of money in this business. Why do you think there are so many insurance agents out there?
In its fourth quarter ended December 2006, AMERISAFE wrote gross insurance premiums of $76.6 million, representing a gain of just over 28% from the comparable quarter. Total revenues for the quarter grew 32% to $96.5 million, while net income grew 160% to $14.0 million. Not bad for an insurance company.
For all of 2006, the company wrote gross premiums of $332.5 million, for a 14% increase. Total revenues for the year grew 20% to $332.7 million, while net income for the year grew to $37.4 million, up from $5.9 million for 2005.
AMERISAFE listed for trading on the NASDAQ in the third quarter of 2005. In my view, this company is very attractive because it is a kind of sleeper stock, representing a great underlying business. It is still a micro-cap company so there’s a lot of inherent risk, but the stock is reasonably priced, it has a track record of success, and the company expects solid growth over the coming quarters.
Once again, here’s an example of an attractive wealth-creating enterprise, operating in a boring, yet profitable industry.