Insurance firms play a critical role in the financial system, offering everything from property coverage to life insurance and specialized risk solutions. Market leaders have certainly capitalized on strong underwriting results and rising investment income to boost profitability, helping fuel a 11.7% gain for the industry over the past six months. This performance has closely followed the S&P 500.
Nevertheless, investors should tread carefully as many insurers are cyclical due to their exposure to claims risk and regulatory changes. Taking that into account, here are two resilient insurance stocks at the top of our wish list and one we’re passing on.
One Insurance Stock to Sell:
Fidelity National Financial (FNF)
Market Cap: $12.72 billion
Issuing more title insurance policies than any other company in the United States, Fidelity National Financial (NYSE: FNF) provides title insurance and escrow services for real estate transactions while also offering annuities and life insurance through its F&G subsidiary.
Why Do We Think FNF Will Underperform?
- Insurance policy sales contracted this cycle as net premiums earned decreased by 3.8% annually over the last five years
- Earnings per share fell by 5.5% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 2.1% annually over the last five years
Fidelity National Financial is trading at $47.45 per share, or 1.4x forward P/B. Dive into our free research report to see why there are better opportunities than FNF.
Two Insurance Stocks to Watch:
Primerica (PRI)
Market Cap: $9.17 billion
With a sales force of over 140,000 licensed representatives operating on an independent contractor model, Primerica (NYSE: PRI) provides term life insurance, investment products, and other financial services to middle-income households in the United States and Canada.
Why Is PRI on Our Radar?
- Pre-tax profits increased over the last five years as the company gained some leverage on its fixed costs and became more efficient
- Share repurchases have increased shareholder returns as its annual earnings per share growth of 17.9% exceeded its revenue gains over the last five years
- Stellar return on equity showcases management’s ability to surface highly profitable business ventures
Primerica’s stock price of $297.98 implies a valuation ratio of 3.5x forward P/B. Is now the right time to buy? See for yourself in our full research report, it’s free.
Travelers (TRV)
Market Cap: $76.02 billion
Tracing its roots back to 1853 when it insured travelers against accidents on steamboats and railroads, Travelers (NYSE: TRV) provides a wide range of commercial and personal property and casualty insurance products to businesses, government units, associations, and individuals.
Why Could TRV Be a Winner?
- Pre-tax profit margin expanded by 10.9 percentage points over the last two years as it scaled and became more efficient
- Share buybacks catapulted its annual earnings per share growth to 51.4%, which outperformed its revenue gains over the last two years
- Expected book value per share growth of 19.8% for the next year suggests its capital position will strengthen considerably
At $364.57 per share, Travelers trades at 2.1x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free.
Stocks We Like Even More
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