At Motley Fool Inside Value, we're running a contest called "A Stock I'd Love to Own" in celebration of our first anniversary. We're asking subscribers to describe their dream stocks in approximately 500 words. The subscriber who posts the best entry will receive a free year of Inside Value.

The purpose of this contest is to enhance our Watch List of superior companies. After all, the key to successful value investing is to constantly keep tabs on a "wish list" of great companies. That way, when the market temporarily sours -- as it's wont to do -- you're ready to pounce and snap up shares of your favorite stock at cut-rate prices. It's a strategy that requires a great deal of patience, but it can be immensely rewarding. Just ask master value investor Warren Buffett, who turned his taste for Cherry Coke and admiration for the Coca-Cola (NYSE:KO) brand into a market-crushing investment.

Of course, by now you're probably wondering which stock I'd love to own....

A superior financial firm
First American (NYSE:FAF) is usually characterized as a title insurance company, but it is so much more than that. Sure, title insurance is a major part of the business, but the key to First American's success is its focus on creating, expanding, and improving its consumer and business databases. I also happen to like First American because its share price has risen by 50% since I first recommended the company to Inside Value members last September. Despite the rise, I still believe the company to be significantly undervalued -- just not quite at the margin of safety that I would require before purchasing shares.

First American is divided into two main divisions: financial services and information technology, although First American occasionally transfers portions of its portfolio to its 80%-owned subsidiary, First Advantage (NASDAQ:FADV), as it did recently with its Credit Information Group. The biggest cost to title insurers is the search and preparation of documents; claims are a mere fraction of the cost of doing business. First American holds a huge "title plant," a database that helps title insurers limit their risk by performing accurate searches and examinations. It's much quicker than thumbing through public records. The database slashes search costs and allows the company to provide timely responses in line with the demands of the industry. That's crucial, because title insurance constitutes 72% of the company's sales and 50% of net income.

The company continues to grow its business organically and through small acquisitions. The acquisitions spur greater growth by regularly adding valuable records to the database. The company has an exceptional record of wringing cost savings out of acquisitions by adding manual records to the database.

The information technology division is also built on databases and consists of four main segments: mortgage, property, credit, and screening information. The mortgage information segment provides real estate tax-monitoring services, flood-zone certification, and default management services in the handling of loss mitigation, foreclosures, and claims processing. First American is the dominant service provider in each of these service industries. It provides credit data to credit bureaus such as Experian and Equifax (NYSE:EFX).

Competitive landscape
In the U.S., title insurance is dominated by First American and Fidelity National (NYSE:FNF), and to a lesser extent, Old Republic International (NYSE:ORI) and LandAmerica (NYSE:LFG). The industry is heavily price-regulated, and prices vary from state to state. Only Fidelity has a similar reach and technology, but while First American emphasizes its database advantages, Fidelity's strength is in software applications. Old Republic is a hybrid title and mortgage insurance company, and LandAmerica is a smaller, but competitive, pure title insurance company.

In addition to its domestic growth strategy, First American will continue to grow in Canada and the U.K., where it is already the leading title insurer. The use of title insurance has been slow to catch on outside the U.S., but there is a growing requirement by mortgage lenders for its use.

The biggest risk to First America is the volatility of the mortgage refinancing market which, when in full flood, adds significantly to the bottom line. Regular mortgage originations do not fluctuate to the same extent, and are generally projected to increase 8% to 10% nationally over the next several years. Any hint of a serious downturn in housing is likely to result in a drop in share price. This happened as recently as last year, when the shares dipped below $25. Since that time, the company has taken steps to reduce its reliance on cyclical revenues. Insurance regulators could bring pressure to bear on prices, as recently happened with refinance rates in some states.

The Foolish bottom line
First American's underlying non-cyclical businesses are on a nice growth trajectory. I view the cyclical revenues, particularly those from refinancings, as an irregular bonus that improves the company's ability to buy back shares and self-finance its growth. The company sports a P/E of around 11, a price-to-book ratio of around 1.5, and has a net cash position of $700 million. Better still, the company's enterprise value-to-free cash flow is below 8.

This is definitely a stock I'd like to own -- but wait a minute! I already own it courtesy of my wife, who bought a few shares when the price dipped last March. I highly recommend that you put this one on your watch list so you'll be ready for the next dip, if it should happen.

More importantly, if you'd like to enter our contest or see which stocks the Fool's other value mavens would love to own, take a no-obligation, 30-day free trial to Inside Value. (Full contest rules are available by clicking here.) You'll have access to all of my previous picks, and if you win the contest, you will receive a free one-year subscription to the service. Runners-up will receive free six- and three-month subscriptions. Click here to learn more.

Philip Durell is lead analyst of Motley Fool Inside Value . He owns shares of First American. First American and Coca-Cola are Inside Value recommendations.