Enjoy your 103% gain on RIO – get in on this exploding financial services firm…

Action to take:  Buy AmTrust Financial Services, Inc (AFSI) up to $16.50, Set Stop-Loss at $13.50.  Sell Companhia Vale Do Rio Doce (RIO) and take gains of 103%.

First, lets talk about this exciting new stock called AmTrust Financial Services (AFSI).  AmTrust is everything a fundamentalist investor could ask for.  This company went public in the middle of November 2006 and has doubled in price in only 8 months.

AmTrust has had only three earnings announcements since its IPO in late 2006; all of which have been positive.  The latest earnings announcement, in early May, beat expectations by 52% and analysts expect earnings to increase by 400% next year!!

The P/E ratio is a solid 15.  This assures us that the doubling of stock price is backed by earnings; we don’t have to worry about the stock price being over-valued.  AmTrust has a lot of room for growth.

Moreover, revenue increased in the first quarter 2007 to $140 million, swallowing last year’s first quarter revenue of $80 million.  The debt to equity ratio is 34%, which is lower than the industry average of 49%.  Confirming that AmTrust is not taking on a lot of debt to finance its growth.  Having a high debt to equity ratio isn’t good because it can cause volatility in earnings due to the additional interest expense. 

Additionally, the return on equity is 24.3%, which is higher than the industry average of 15.1%.  Showing us that AmTrust is more efficient, than the majority of its competitors, at using investment dollars to generate earnings growth.

Amtrust is a major player in the property and casualty insurance industry.  With the recent real-estate boom, not only in consumer housing but commercially as well, there is going to be a monumental increase in the demand for property insurance.  This is going to be a large part of AmTrust’s revenue for many years to come.

This is a sound company that is early in its growth cycle; there is no limit to how high the stock price can go. All of the signs are pointing at AmTrust hitting $40 per share by December 2007.

As for the sell side, we are going to secure our gains in Companhia Vale Do Rio Doce (RIO).  We recommended a buy on this company in May of 2006 at $23.53; on expectations of the stock price going to $40 buy the end of 2006.  The stock is now at $47.10 a share and has surpassed our expectations significantly.  It is time to “seal the deal” on that nice profit of 103%.

Cheers,

Mitchell Sachs
Senior Equity Analyst, Wall Street Elite