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5 Value Stocks From the Undervalued P&C Insurance Industry
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The Zacks Property and Casualty Insurance industry is currently undervalued compared with the Zacks S&P 500 composite as well as the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 1.3, less than the Zacks S&P 500 composite’s P/B of 6.7 and the sector’s P/B of 3.2. Such below market positioning hints at room for upside in the coming quarters.
Before their valuation increases, it is wise to add some undervalued stocks with growth potential to one’s portfolio.
Driving Forces
The industry is well poised to benefit from improved pricing, prudent underwriting and increased exposure despite rise in catastrophe losses.
A benign catastrophe environment aids underwriting results, a profitability measure, of P&C insurers. Per Aon, economic losses in 2020 totaled $268 billion, stemming from 416 natural catastrophe events. It further stated losses were “8% above the average annual losses for this century.”
Nonetheless, occurrences of frequent natural disasters should accelerate the policy renewal rate. Also, high degree of losses incurred set the stage for continued price hikes. Per Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year. Insurers are also increasingly taking reinsurance covers to safeguard their profit.
Though P&C insurers’ financials are less sensitive to interest rates than life insurers, a better interest rate environment will cushion investment income. Also, a low rate is a headwind for long-tail property and casualty insurers. A rate recovery is unlikely until 2023.
Nonetheless, increasing adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence, advanced analytics, telematics, blockchain and cloud computing should help insurers manage costs. The P&C insurers, in particular, witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players.
Also, the industry is well capitalized, enabling players to pursue mergers and acquisitions, thus curbing competition in the process. Sustained low rate environment aids fund procurement at a lower cost. Also, sturdy capital levels help in boosting shareholder value through dividend hikes, special dividend and share buybacks.
Zacks Rank
The Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid prospects in the near term. The industry currently carries a Zacks Industry Rank #91, which places it in the top 36% of 255 Zacks industries.
Also, in a year’s time, the industry’s earnings estimate for the current year has gone up 1.7%, rightly positioning it in the top 50% of the Zacks-ranked industries.
Price Performance
The industry has underperformed the Zacks S&P 500 composite but outperformed the Finance sector year to date. While the Zacks S&P 500 composite and the sector have increased 12.4% and 6.3%, respectively, the industry has risen 8.9% in the said time frame.
Nonetheless, strategic initiatives to build a competitive and diversified portfolio alongside mergers and consolidation for ramping up growth and extending global presence poise insurers well for the longer term.
Picking the Stocks
With the help of the Zacks Stock Screener, we have selected five P&C insurance stocks with an impressive Value Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). Back-tested results have shown that stocks with a favorable Value Score coupled with a solid Zacks Rank are the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have also witnessed positive estimate revisions, reflecting analysts’ confidence in the companies’ operational efficiency.
Alleghany Corporation engages in property and casualty reinsurance and insurance businesses in the United States and internationally. Shares have gained 6.9% year to date. The stock currently has a P/B ratio of 1.04. The Zacks Consensus Estimate for current-year earnings has moved up 9.3% while that for 2020 has moved north by 13.2% over the past 30 days.
CNA Financial Corporation (CNA - Free Report) offers commercial P&C insurance products, mainly across the United States. Its shares have rallied 20.4% year to date. It currently has a P/B ratio of 1. The Zacks Consensus Estimate for current-year earnings has moved up 5.5% over the past 60 days.
Selective Insurance Group (SIGI - Free Report) offers insurance products and services across the United States. Shares have risen 13.4% year to date. It currently has a P/B ratio of 1.8. The Zacks Consensus Estimate for current-year earnings has moved up by 7.1% while that for 2022 has increased 4.3% over the past 60 days.
First American Financial (FAF - Free Report) serves homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions with products and services specific to their needs. Its shares have returned 4.2% year to date. It currently has a P/B ratio of 1.2. The Zacks Consensus Estimate for current-year earnings has moved up 8.6% over the past 60 days.
Fidelity National Financial (FNF - Free Report) provides various insurance products in the United States. Its shares have returned 5.1% year to date. It currently has a P/B ratio of 1.4. The Zacks Consensus Estimate for current-year earnings has moved up 7.6% over the past 30 days.
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency has sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks’ has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
Image: Bigstock
5 Value Stocks From the Undervalued P&C Insurance Industry
The Zacks Property and Casualty Insurance industry is currently undervalued compared with the Zacks S&P 500 composite as well as the Zacks Finance sector. The price-to-book (P/B) ratio, the best multiple for valuing insurers because of their unpredictable financial results, is 1.3, less than the Zacks S&P 500 composite’s P/B of 6.7 and the sector’s P/B of 3.2. Such below market positioning hints at room for upside in the coming quarters.
Before their valuation increases, it is wise to add some undervalued stocks with growth potential to one’s portfolio.
Driving Forces
The industry is well poised to benefit from improved pricing, prudent underwriting and increased exposure despite rise in catastrophe losses.
A benign catastrophe environment aids underwriting results, a profitability measure, of P&C insurers. Per Aon, economic losses in 2020 totaled $268 billion, stemming from 416 natural catastrophe events. It further stated losses were “8% above the average annual losses for this century.”
Nonetheless, occurrences of frequent natural disasters should accelerate the policy renewal rate. Also, high degree of losses incurred set the stage for continued price hikes. Per Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year. Insurers are also increasingly taking reinsurance covers to safeguard their profit.
Though P&C insurers’ financials are less sensitive to interest rates than life insurers, a better interest rate environment will cushion investment income. Also, a low rate is a headwind for long-tail property and casualty insurers. A rate recovery is unlikely until 2023.
Nonetheless, increasing adoption of technologies like artificial intelligence, robotic process automation, cognitive intelligence, advanced analytics, telematics, blockchain and cloud computing should help insurers manage costs. The P&C insurers, in particular, witnessed the emergence of insurtech — technology-led insurers — creating competition for incumbent players.
Also, the industry is well capitalized, enabling players to pursue mergers and acquisitions, thus curbing competition in the process. Sustained low rate environment aids fund procurement at a lower cost. Also, sturdy capital levels help in boosting shareholder value through dividend hikes, special dividend and share buybacks.
Zacks Rank
The Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates solid prospects in the near term. The industry currently carries a Zacks Industry Rank #91, which places it in the top 36% of 255 Zacks industries.
Also, in a year’s time, the industry’s earnings estimate for the current year has gone up 1.7%, rightly positioning it in the top 50% of the Zacks-ranked industries.
Price Performance
The industry has underperformed the Zacks S&P 500 composite but outperformed the Finance sector year to date. While the Zacks S&P 500 composite and the sector have increased 12.4% and 6.3%, respectively, the industry has risen 8.9% in the said time frame.
Nonetheless, strategic initiatives to build a competitive and diversified portfolio alongside mergers and consolidation for ramping up growth and extending global presence poise insurers well for the longer term.
Picking the Stocks
With the help of the Zacks Stock Screener, we have selected five P&C insurance stocks with an impressive Value Score of A or B and a Zacks Rank #1 (Strong Buy) or #2 (Buy). Back-tested results have shown that stocks with a favorable Value Score coupled with a solid Zacks Rank are the best investment options. You can see the complete list of today’s Zacks #1 Rank stocks here.
These stocks have also witnessed positive estimate revisions, reflecting analysts’ confidence in the companies’ operational efficiency.
Alleghany Corporation engages in property and casualty reinsurance and insurance businesses in the United States and internationally. Shares have gained 6.9% year to date. The stock currently has a P/B ratio of 1.04. The Zacks Consensus Estimate for current-year earnings has moved up 9.3% while that for 2020 has moved north by 13.2% over the past 30 days.
CNA Financial Corporation (CNA - Free Report) offers commercial P&C insurance products, mainly across the United States. Its shares have rallied 20.4% year to date. It currently has a P/B ratio of 1. The Zacks Consensus Estimate for current-year earnings has moved up 5.5% over the past 60 days.
Selective Insurance Group (SIGI - Free Report) offers insurance products and services across the United States. Shares have risen 13.4% year to date. It currently has a P/B ratio of 1.8. The Zacks Consensus Estimate for current-year earnings has moved up by 7.1% while that for 2022 has increased 4.3% over the past 60 days.
First American Financial (FAF - Free Report) serves homebuyers and sellers, real estate professionals, loan originators and servicers, commercial property professionals, homebuilders and others involved in residential and commercial property transactions with products and services specific to their needs. Its shares have returned 4.2% year to date. It currently has a P/B ratio of 1.2. The Zacks Consensus Estimate for current-year earnings has moved up 8.6% over the past 60 days.
Fidelity National Financial (FNF - Free Report) provides various insurance products in the United States. Its shares have returned 5.1% year to date. It currently has a P/B ratio of 1.4. The Zacks Consensus Estimate for current-year earnings has moved up 7.6% over the past 30 days.
Bitcoin, Like the Internet Itself, Could Change Everything
Blockchain and cryptocurrency has sparked one of the most exciting discussion topics of a generation. Some call it the “Internet of Money” and predict it could change the way money works forever. If true, it could do to banks what Netflix did to Blockbuster and Amazon did to Sears. Experts agree we’re still in the early stages of this technology, and as it grows, it will create several investing opportunities.
Zacks’ has just revealed 3 companies that can help investors capitalize on the explosive profit potential of Bitcoin and the other cryptocurrencies with significantly less volatility than buying them directly.
See 3 crypto-related stocks now >>