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One of my favorite industries to watch is title insurance. Yes, it’s boring but it’s also a low-risk business with steady and consistent and variables. (Here's an earlier post on the sector.)

Right now, however, is a rotten time for the sector. Stocks like Fidelity National (FNF) and First American (FAF) are down a lot and going for very low valuations. FNF is going for less than 10 times trailing earnings and it pays a dividend of 7%. It looks like earnings aren’t going to get better soon.

Today, the WSJ took a closer look at the problems facing title insurers:

"In times of economic loss, title claims go up," says Theodore L. Chandler Jr., chief executive of LandAmerica Financial Group Inc., another big title insurer based in Richmond, Va. There was a severe spike in claims, for instance, during the recession in the early 1990s.

Moreover, some title insurers are reporting a drop in new business. While that might not sound particularly surprising, given the real-estate slowdown, it could be a glimpse of more trouble ahead: Title-search orders usually come at least several weeks before a buyer takes out a mortgage.

“If you want to know what's going on with mortgage activity, you look at title orders,” says Nik Fisken, an insurance-industry analyst at Stephens Inc.

First American says average daily title orders were down 6% in July from June and that preliminary results indicate another 9.3% drop from July to August. Fidelity National Financial, a major title insurer based in Jacksonville, Fla., says there was a nearly 8% decline between April and June.

Fidelity National hasn't disclosed additional data about more recent months. But Chief Financial Officer Anthony Park says, “It's slowed down considerably, particularly in the month of August.”

I can’t say when yet, but sometime soon will be a great buying opportunity.

Posted by edelfenbein at September 10, 2007 9:44 AM