Monday, June 13, 2011

Hilltop Holdings Inc (NYSE: HTH) Q3 2011 Price Target

Recent price: 9.23$
P/E Ratio: -
3 Months Target Price: 10$

Company Description
According to Reuters, Hilltop Holdings Inc, formerly Affordable Residential Communities Inc. is a holding company. The Company provides fire and homeowners insurance to low value dwellings and manufactured homes in Texas and other areas of the south, southeastern and southwestern United States through its wholly owned property and casualty insurance holding company, NLASCO, Inc. (NLASCO). NLASCO operates through its wholly owned subsidiaries, National Lloyds Insurance Company (NLIC), and American Summit Insurance Company (ASIC). NLASCO provides insurance products in the personal line and the commercial line markets. The personal lines include homeowners, dwelling fire, manufactured home, flood and vacant policies. The commercial lines include commercial, builders risk, builders risk renovation, sports liability and inland marine policies.

Confidence Margins
Strong resistance $10.52 (+14%)
Light resistance $10.12 (+10%)
Light support $9.01 (-2%)
Strong support $8.75 (-5%)

This company has seen it's share of drama over the last weeks. Not only is the company a part of the property and casualty insurance group, but the market links it's performance to other bank holding companies. This is a great entry point for investors willing to way for a reversal in the mood of the market.

Entry strategy
For the cautious investor:
Buy the stock for 10$ or less.

For the risk-taking trader:
The November 2011 10$ out-of-the-money call option contract seems to be the right position to take, they can be acquired for about 50$ per contract. These contracts are enormously undervalued by the market as their Black and Scholes Model price is lower than that of the 12.50$ contracts. This is clearly an anomaly.

Exit Strategy
For the cautious investor:
Sell when the stock reaches 10$, or keep it until 10.50$ if you are more bullish in your own analysis.

For the risk-taking trader:
The contracts should be kept until the underlying reaches 10$. This should provide a very interesting return if the underlying reaches the target price as the contracts will get in the money.

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