Four must-own companies control over 81% of the title insurance market in the U.S.
Title insurance is a massive and growing business in the U.S. that generated close to $16 billion of revenue in 2019.
However, few investors realize that only 4 companies control roughly 81% of the total market… AND their stocks are trading at some of the lowest valuations in years.
But before we dive into each of these companies, let’s first go over what title insurance is.
As you know, when you buy a home, it needs to have a clear title.
Title insurance is a form of insurance that protects lenders and homebuyers against title defects, such as a previous owner’s debt, liens, and other claims of ownership that may have been instituted prior to the purchase.
An Owner’s Title Policy is designed to protect you from covered title defects that existed prior to the issue date of your policy while a Lender’s Policy insures that your lender has a valid, enforceable lien on your property.
By purchasing a policy, a title company will perform a meticulous search of public records to find any outstanding claims or title defects with the goal of eliminating title issues before the purchase occurs.
This makes title insurance a critical piece of nearly every real estate transaction that takes place, which is why it’s closely tied to the health of the real estate market.
Why does that matter?
According to Freddie Mac, mortgage rates recently hit a record low for the 14th time this year – with the 30-year fixed mortgage rate dropping to a shocking 2.71%.
As a result, these record low interest rates have fueled this year’s strong rebound and growth in the U.S. housing market.
For investors, this means that we’re in the early stages of a massive run-up for title insurance stocks — making this the perfect time to begin gaining exposure to this niche but crucial market.
The best part is, there are only 4 companies you need to own because they combine to cover roughly 81% of the total market. They are:
- Fidelity National Financial, Inc. (NYSE:FNF)
- First American Financial Corporation (NYSE:FAF)
- Old Republic International Corporation (NYSE:ORI)
- Stewart Information Services Corporation (NYSE:STC)
Let’s take a closer look at each of these title insurance stocks.
Fidelity National Financial, Inc. (NYSE:FNF)
By far the largest and most profitable title insurance company in the U.S., Fidelity National Financial currently controls nearly one third of the market with 32.7% of the total market share.
The company was founded in 1847 and is headquartered in Jacksonville, Florida. It offers title insurance, escrow, and other title related services, including trust activities, trustee sales guarantees, recordings and conveyances, and home warranty insurance.
The company also provides technology, and transaction services to the real estate and mortgage industries; and mortgage transaction services, including title-related services and facilitation of production and management of mortgage loans. In addition, it engages in the real estate brokerage business. Fidelity National’s title insurance underwriters include Fidelity National Title, Chicago Title, Commonwealth Land Title, Alamo Title and National Title of New York
For the period ended September 30, 2020, Fidelity National reported revenue of approximately $3.0 billion versus $2.2 billion in the third quarter of 2019. The company also reported net earnings from continuing operations of $406 million and EPS of $1.39.
First American Financial Corporation (NYSE:FAF)
First American Financial Corporation may control the second largest market share of the title insurance business with 23.6% of the total market, but it has the best economics.
Founded in 1889 and headquartered in Santa Ana, California, First American Financial is a leading provider of title insurance, settlement services, and risk solutions for real estate transactions. It also provides title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; banking, trust and wealth management services; and other related products and services.
In Q3 2020, total revenue reached $1.9137 billion – up from $1.6712 billion in the same period in 2019. The company also reported net income of $182.3 million which worked out to $1.62 per share. First American also reported free cash flow of $280 million and had net margins of 9.52%.
Old Republic International Corporation (NYSE:ORI)
With 15.2% of the total market share, Old Republic International Corporation is the third company on our list of must-own title insurance stocks.
Old Republic traces its beginnings back to 1923 and is headquartered in Chicago, Illinois. It is an insurance holding company that markets, underwrites, and provides risk management services for a wide variety of coverages, mostly in the general and title insurance fields.
For the 3 months ended September 30, 2020, ORI reported total revenues of $1.8838 billion which was up from $1.771 billion in the same period in 2019. The company also reported net income of $246 million – up from $202.8 million in the same period last year.
Stewart Information Services Corporation (NYSE:STC)
The last company on our list of must-own title insurance stocks is Stewart Information Services Corporation.
Stewart Information Services Corporation was founded in 1893 and is headquartered in Houston, Texas, and their revenues account for about 9.8% of the $16 billion market.
The company provides title insurance and real estate transaction services through two main operating segments, Title Insurance and Related Services, and Ancillary Services and Corporate, and they provide their services to homebuyers and sellers; residential and commercial real estate professionals; mortgage lenders and servicers; title agencies and real estate attorneys; home builders; and United States and county governments.
In addition, the company also provides loan origination and servicing support; loan review services; REO asset management; due diligence for capital markets; collateral valuations; home and personal insurance services; tax-deferred exchanges; and technology to streamline the real estate process.
According to their Q3 financials for the period ended September 30, 2020, STC reported:
– Operating revenues of $590.7 million, an increase of $82.8 million, or 16%, compared to the prior year quarter
– Net income of $55.9 million versus net income of $66.1 million ($30.4 million on an adjusted basis) in the prior year quarter
– Diluted EPS of $2.21 compared to prior year quarter diluted EPS of $2.78 ($1.28 on an adjusted basis)
-Investing Insider Magazine