Enact Holdings (ACT) Stock

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Contributor, Benzinga
September 3, 2021
Last update: 4:00PM (Delayed 15-Minutes)
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Vol / Avg.241.919K / 308.055KMkt Cap4.302B
Day Range26.620 - 27.12052 Wk Range20.840 - 29.740

As the red-hot real estate market gets even hotter, panicked home buyers are doing everything they can to put up attractive bids for sellers. In so doing, the private mortgage insurance industry boomed, directly supporting Enact Holdings Inc’s key business and its public offering. As private companies become public companies, you can search the stock market for a range of common stocks that could add diversity to your portfolio.

Formerly known as Genworth Mortgage Holdings, Enact Holdings Inc. is a spinoff from parent company Genworth Financial (NYSE: GNW). Analysts are keen on how this market debut holds up as it’s a real-time housing demand indicator.

If you’re interested in participating in the IPO, below are the key points to know about this private mortgage insurance company.

Enact Holdings Financial History

Mainly, among the biggest reasons for the enthusiasm over the Enact Holdings IPO is the resilience of the housing market. Despite the initial threat of the COVID-19 pandemic, real estate prices boomed in a counterintuitive manner, drawing intense demand for sector-related businesses.

Indeed, you can see the positive impact that soaring demand has had on Enact’s financials. According to its S-1 filing with the Securities and Exchange Commission, in full year 2020, the company posted revenue of $1.1 billion, up 13% from $979 million generated in 2019. In turn, this tally was up 16% from the $841 million in top-line sales recorded for 2018.

Better yet, Enact was robustly profitable last year, posting net income of $370 million. True, this was down significantly from the nearly $678 million earned in 2019. However, the broader impact of the pandemic, particularly in the first few months of 2020 caused some rumblings in Enact’s financials.

Still, once the economy fully recovers from the public health crisis, it’s probable that Enact will enjoy stabilization in its business. As evidence, the company shored up its already healthy balance sheet, boosting its total asset base by nearly 26% to $5.65 billion.

Enact Holdings Potential

Thanks to the intense demand in the U.S. housing market, it’s very possible that investors will likewise bid up the Enact Holdings IPO. So long as people want to buy and available inventory remains low, the narrative for ACT stock is incredibly bullish.

First, you must look at the facts. Last year, private mortgage insurance programs helped 2 million low-down payment borrowers secure a mortgage, which was up a whopping 53% from 2019. All told, the PMI industry supported $600 billion in mortgage originations.

Second, PMI is a necessity, especially in this environment. Last year, nearly 60% of PMI-backed loans went to first-time homebuyers, which is hardly surprising. Typically, PMI becomes a legal requirement if a borrower cannot put down at least 20% of the target home’s value. Since first-time buyers tend to be young and less capitalized, this type of insurance has long legs.

But that depends of course on the continued momentum of the housing market. On one hand, trusted indicators such as the S&P/Case-Shiller U.S. National Home Price Index suggests unprecedented demand for real estate.

That’s the good news. The not-so-great news is that housing demand tends to follow a stable rhythm. Therefore, the wild buying surge suggests that future demand has been accelerated up into this year, which logically implies that the forward-looking outlook is negative.

How to Buy Enact Holdings IPO (ACT) Stock

With traditional IPOs, you have two ways of participating in the process. If you’re an institutional investor or have the account size of one, underwriters may attempt to entice you with shares at their initial offering price. That way, you can take advantage of the IPO pop, or the enthusiastic wave of support from public investors.

If you’re not that fortunate, you are left to take a gamble when the stock makes its debut. Still, you have the advantage of discretion. A lot can happen on IPO day. Also, this approach is the easiest. If you know how to buy stocks, you’re ready to go. If not, follow these simple steps.

Step 1: Pick a brokerage.

Back in the old days, picking a brokerage was of consequence due to varying fees and costs. But the advent of mobile investing apps forced a paradigm shift in the brokerage business. Today, most of the industry’s incentives, such as commission-free trading, are standardized.

This means that you should select a platform that works best for your lifestyle and needs. To help you with the process, below is a list of best brokers to consider when buying for the first time or picking up additional shares.

Step 2: Decide how many shares you want.

Deciding your share count is crucial because it determines your risk-reward profile. The more shares you buy, the more profitability you will enjoy if the target stock goes up. Logically, the opposite is true. Thus, only go with a large share count (relative to dollar terms) for your highest-conviction ideas.

Step 3: Choose your order type.

Before placing your first trade, make sure to understand basic market concepts such as order types.

  • Bid: The bid is the maximum price a buyer will extend to a seller. It is always lower than the ask.
  • Ask: On the other hand, the ask is the minimum price that a seller will take. It is always higher than the bid.
  • Spread: The difference between the bid and ask price is called the bid-ask spread or simply the spread. You’ll want to watch this as it indicates both liquidity and risk. Narrower spreads indicate higher liquidity levels and therefore lower risk because you can almost always find a buyer for your shares. Conversely, wider spreads signal lower liquidity and higher risk due to a lack of available buyers.
  • Limit order: Choose a limit order to buy stock at a specific price. But there’s no guarantee that it will reach said price.
  • Market order: To buy shares at the going rate, use a market order, which will fulfill at the next available price. The terms are unfavorable, with buy orders fulfilling at the ask and sells on the bid.
  • Stop-loss order: A protective mechanism designed to exit your holdings at either a predetermined price or the next available price, whichever triggers first. Gap-down sessions which open at a much lower price than the prior day’s close present risks to stop-loss orders.
  • Stop-limit order: Stop-limit orders only fulfill at the predetermined price, eliminating a gap-down session’s nasty surprise. But if the stock continues falling, you would have been better off with a stop loss.

Step 4: Execute your trade. 

To execute a market order, take these steps:

  1. Select action type (buy or sell).
  2. Enter the shares you want to acquire (or sell).
  3. Hit the buy (or sell) button.

It’s the same process above for limit orders, except you must enter your desired price of execution.

Riding the Housing Euphoria

If you’re one of the millions of homebuyers priced out of your owning your piece of the American Dream, you could do the next best thing and buy shares of the Enact Holdings IPO. Through its PMI business, Enact gives shareholders a chance to ride the unprecedented housing boom. Even better, most indicators suggest the ride will continue moving northbound.

Nevertheless, nothing goes up indefinitely. One of the biggest risks to ACT stock is that future demand is being pushed up today. Essentially, this is a robbing Peter to pay Paul narrative. When the future finally arrives, the demand picture then may not nearly be as robust as it is right now.

Therefore, private investors must weigh the situation carefully before deciding on the Enact IPO.

About Joshua Enomoto

His distinct writing style of distilling convoluted data into relatable and compelling narratives has earned him recognition among several investment-related publications.