Tower Group, Inc. (TWGP)

Tower Group has been an outperformer in an industry beaten down by the 2007-2009 recession. Tower Group managed to increase shareholders’ equity and book value through it all. The Company’s strategy is to underwrite insurance in specific market segments often ignored by traditional insurance companies. They often go where no one else is willing to go. This strategy has allowed Tower Group to increase revenues and profit by 350% and 536% since 2004 respectively. Earnings yield and profit margin are above the sector average indicating the company has excellent profitability levels. Tower Group pays a healthy dividend yield of 1.22%. The Company could pay off all its long-term debt in 2.5 years on profit alone. The stock price has not reflected these excellent fundamentals however. The PE, PS, and PB ratios are below the industry average indicating the company is cheap relative to its industry. Tower Group has outperformed 37% of the market in the last 12 months indicating the stock to be substantially undervalued relative to its fundamentals grade of 88%. Tower Group is valued at $30.72 which is undervalued at a current price of $23.02 (December 18, 2009). Return on assets is below the sector average. Risks include overwhelming catastrophic losses to policy holders, adverse government regulations, deterioration of capital markets, obsolescence of the current business model, etc. Refer to the 2008 annual report for more.