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Conseco: Cleaning Up On The Insurance Mess


Inside Wall Street

CONSECO: CLEANING UP ON THE INSURANCE MESS

Money manager Stanley Goldring doesn't believe in pursuing dozens of stocks. Over the past two years, he has focused primarily on just two issues, both of which have tripled since he bought them. His more recent winner: Conseco, a life-insurance holding company.

Goldring, a managing partner at Ladenburg Thalmann's KG Securities division, started buying into Conseco in November, when it was selling in the low 20s. It has since zoomed to 68. Goldring's earlier pick was Amgen, another superwinner, which he discovered in May, 1990, when the stock was at 36. Now, it's at 130.

Big Board-listed Conseco, which specializes in acquiring life and health insurers with sizable assets, has been high on the shorts' list. They say Conseco faces gigantic financial woes. The shorts question its accounting practices and describe current debt as too heavy. They also doubt Conseco's ability to sustain the robust earnings that big investors, including the legendary John Templeton, are expecting. Templeton has accumulated an 11% stake. Conseco Chairman Stephen Hilbert says earnings growth will meet expectations. "We have no asset problem, our capital base is growing and debt has been cut dramatically."

With Conseco's phenomenal rise, the short position in the stock has ballooned to some 800,000 shares, or about 40% of the issue's float. Insiders own some 32% of the stock, and Goldring and Templeton have an additional 21%. The shorts insist that Conseco, which has 4.9 million shares outstanding, is sure to tumble sometime soon.

SHORT SQUEEZE? Goldring and other Conseco fans, including ace insurance analyst Ray Dirks of Baird Patrick, think otherwise. (Dirks is being investigated by the SEC on charges of insider trading in Conseco's stock. Dirks says the allegations are "totally untrue and ridiculous.") The bulls argue that Conseco is headed for even higher ground. Goldring figures it will hit $85 to $100 a share over the next 6 to 12 months on earnings alone. And he thinks a short squeeze could develop as it rises.

Goldring sees earnings of $8 a share this year and more than $10 in 1992, vs. last year's $5. "The stock is awfully cheap at a multiple of just 6.4 times 1992 earnings," he says.

Because of the disarray in the life-insurance industry, Goldring thinks Conseco is a perfect play. The situation affords a "golden opportunity" to acquire insurers that could raise the quality of Conseco's assets while boosting earnings and cutting operating costs through economies of scale. Conseco recently bought CalFed's Beneficial Standard unit, which has assets of $2 billion and premiums and revenues of $790 million. Because most insurers have been under pressure, Conseco was able to pick it up for $140 million.

Conseco's total assets, which the company says have only minor exposure to junk bonds and mortgage loans, have grown from just $100 million in 1982 to $8.3 billion on Dec. 31, 1990. Earnings have soared as well, from 50~ a share to 10 times that.GENE G. MARCIAL


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