I’ll be writing a fully comprehensive research report within the next week to update you on AGO, but their earnings yesterday were spectacular once again.  Book value per share grew to $43.96 from $36.37 a year ago.  Operating book value per share grew to $43.11 from $37.48 a year ago.  Adjusted book value grew to $61.18 from $53.66 a year ago.  Operating income for the year was a whopping $4.69 per share, while net income per share was $7.08.  This is all for a stock that trades around $25.  Honestly, AGO has held up pretty well in this market as its 52-week high is $29.75. The obvious question is, if the business is performing so well, why is the stock so cheap?

The answer, is that the market hates uncertainty.  Despite Puerto Rico, representing a tiny fraction of AGO’s exposure, the stock moves on headlines.  Most headlines in these types of restructurings are terrible but the results at the end are usually far better.  I’ve seen it before with Detroit, Jefferson County and Stockton.  I’ll leave the rest for my upcoming article but I wanted to show you a table below that shows the company’s performance over the last 5 years.  Their risk exposures are down dramatically.  Earnings and book value per share has been growing.  The company has never been in better shape.  The Puerto Rico situation is an absolute joke.  I’ve never seen such a lack of respect for the rule of law and I believe that it is indicative of an utterly toxic environment in Washington D.C, which we are all unfortunately aware of.  Short-term stock moves are very unpredictable but when you look at the fundamentals, the undervaluation is obvious!  Meanwhile we’ve been selling some extremely lucrative covered calls far above current prices.  We only do this because we are so big in the stock and the premiums are so strong.  If we were to get exercised, we certainly aren’t prohibited from selling puts and doing more things to get back in which we have always done historically.  Keep in mind, our cost basis is quite low on the stock since we’ve mostly gotten into it via sold put options, which we collected huge premiums that aren’t fully reflected on VEO.  Also, we’ve already had calls we’ve sold expire worthless generating solid income, while allowing us to retain the upside in the stock.  I’ll have much more detail next week, but the future looks very bright for our major investments!