Rising mortgage rates drove down First American Financial (FAF
)'s stock price as Wall Street investors feared an end to the refinancing boom. Over the near-term, we anticipate downward earnings revisions as refinancings come to a halt rather quickly and new home sales take time to ramp up. But looking further out, we know title insurance policies on new home purchases are twice as profitable as refinancings which will drive earnings at First American. Not to mention, with the stock trading at just 10x consensus earnings, our bullishness is only magnified by the stock's incredibly cheap valuation.
From John Rogers
' Ariel Fund and Ariel Appreciate Fund portfolio manager letter third quarter 2013