Zacks Bull and Bear of the Day Highlights: RLI, Novatel, Fannie Mae, Bank of America and J.P. Morgan

CHICAGO--(BUSINESS WIRE)--Zacks Equity Research highlights: RLI Corp. (NYSE: RLI) as the Bull of the Day and Novatel (Nasdaq: NVTL) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Fannie Mae (NYSE: FNMA), Bank of America (NYSE: BAC) and J.P. Morgan (NYSE: JPM).

Full analysis of all these stocks is available at http://at.zacks.com/?id=2678.

Here is a synopsis of all five stocks:

Bull of the Day:

We are upgrading RLI Corp. (NYSE: RLI) to Outperform as we believe the company will benefit from business expansion drive diversification into crop and other assumed property reinsurance. Also its extensive product offerings, strong local branch network and focus on specialty insurance lines is expected to aid top-line growth.

Its second quarter earnings outperformed the Zacks Consensus Estimate on better-than-expected premiums coupled with favorable reserve release. However, RLI continues to witness lower premiums in its Casualty segment, due to the continued soft environment in construction and transportation-related coverages.

Nevertheless, we expect the company's underwriting discipline to bode well as the market stabilizes under a restrictive premium growth. RLI also scores strongly with rating agencies. Continued dividend increases and new share repurchase authorization further reflect solid capital position.

Bear of the Day:

We downgrade our recommendation for Novatel (Nasdaq: NVTL) to Underperform following its second quarter 2009 financial results, well below the Zacks Consensus Estimates. Novatel is facing intensifying competition for its legacy embedded solutions products that is expected to result in overall lower ASP and lower gross margin.

Although the company has developed a niche for its MiFi mobile intelligent hot spot, we foresee increased competition from the latest version of smartphones with in-build WiFi capabilities. Additionally, Novatel is suffering from huge customer concentration risk. The company has yet to launch any products for the lucrative next-generation wireless networks.

Novatel has provided a tepid financial outlook. We do not find any immediate growth catalyst for the company, and believe Novatel will incur loss for full-year 2010.

Latest Posts on the Zacks Analyst Blog:

The Problem of the F’s

The ultimate indication of a mortgage that has gone bad is when the lender forecloses and ends up owning the property. The number of properties that are in "Real Estate Owned" status (REO) by Fannie Mae (NYSE: FNMA), Freddie Mac, the Federal Housing Authority and owned by the owners of the private-label mortgage-backed securities that were created by the likes of Merrill Lynch, now part of Bank of America, (NYSE: BAC) and its now defunct brethren Bear Stearns, now owned by J.P. Morgan, (NYSE: JPM) and Lehman Brothers speak volumes about the housing bubble and its aftermath.

The first thing to note by way of background is that the private-label paper creation pretty much came to an end in 2007 when the housing market first started to fall apart. At that point there was huge pressure on Fannie and Freddie to step up their activities, since otherwise mortgages would simply not be available. Still it is clear that early on, the worst loans were the ones that were being funded by Wall Street, not the conforming loans backed by Fannie, Freddie and the FHA (collectively, the F's).

The light blue bar is far larger early on than all of the F's combined. Through 2008, the private-label paper was dramatically increasing the number of homes foreclosed on, and of which they eventually took ownership. Since then, the banks that service these loans have been aggressive in auctioning them off.

Meanwhile the number of mortgages that the F's have had to foreclose on and take ownership off has steadily increased. Still, the number of owned properties from the private label side still make up about as much as the three F's combined.

Just to be clear, none of the private-label mortgages that went bad had anything to do with the Community Reinvestment Act (CRA), since the mortgage brokers who made these loans and then sold them to Wall Street to be sliced and diced in their magic Cuisinart were not subject to the provisions of the CRA. That Cuisinart turned the rotten vegetables of subprime and alt-A loans in to the gourmet AAA meals with the assistance to the sous chefs of S&P, Moody's and Fitch. That meal is what gave the entire world economy food poisoning.

Get the full analysis of all these stocks by going to http://at.zacks.com/?id=2649.

About the Bull and Bear of the Day

Every day, the analysts at Zacks Equity Research select two stocks that are likely to outperform (Bull) or underperform (Bear) the markets over the next 3-6 months.

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