In this piece, we will take a look at the 11 undervalued insurance stocks to buy now. If you want to skip our overview of the insurance industry and some recent trends, then take a look at 5 Undervalued Insurance Stocks To Buy Now.
The insurance industry is one of the oldest in the world. In its earliest form, this sector dealt with business cargo and provided traders with a safety buffer in case of accidental losses. Now, insurance comes in all forms and sizes, for private individuals, businesses, and even governments. The modern day financial industry involves assets worth billions of dollars, and a substantial reduction in their value can have far reaching consequences. These impacts require insurance as a backup, and this principle also applies to healthcare access in most modern economies.
Naturally, this ubiquity makes the global insurance industry quite sizeable. For instance, considering the health insurance sector only, which deals with individuals paying for basic and advanced medical procedures, research shows that this sector can be worth as much as $5.28 trillion by 2030 end after growing at a compounded annual growth rate (CAGR) of 9.9% from 2022. If you thought that $5.28 trillion was a sizeable amount, you might be even more surprised to learn about the total insurance premiums that were written in 2022. Data from the recruitment firm Zippia shows that insurance premiums written all over the world exceeded a whopping $7 trillion, with the U.S. accounting for 20% or $1.4 trillion. For comparison, consider the fact that America accounts for less than twenty percent of the global population, and it becomes clear that insurance is big business and big money in the United States.
And for good reason. One of the most polarizing topics in U.S. politics is the cost of healthcare, especially since other developed countries such as Canada, the U.K., and Scandinavian nations are able to provide state funded insurance products. However, the population of the U.S. is greater than all these countries combined, and coupled with the fact that healthcare costs such as a simple emergency room visit can often run into thousands of dollars, subsidizing American healthcare is not for the faint of heart.
The size of the American insurance industry also makes it unsurprising that the biggest health insurance company in the world, UnitedHealth Group Incorporated (NYSE:UNH), is also headquartered and based in the U.S. And when it comes to hedge fund sentiment, it seems that bigger is also better, as our look at the most popular health insurance stocks among hedge funds showed that UNH also had the highest number of hedge fund investors as of Q2 2023. This hedge fund interest was also present during the first quarter, as back then, out of the 910+ hedge funds tracked by Insider Monkey, 116 had invested in United Health Group.
Not only are hedge funds as a whole piling into insurance, but one of the most successful investors of our time, Warren Buffett of Berkshire Hathaway, is a fan of the sector. Mr. Buffett has a long and storied past with insurance, and his holding firm owns entire insurance businesses. Berkshire Hathaway's earnings report for the third quarter of 2023 shows that the firm owned $21.3 billion from insurance premiums, which exceeded revenues from its energy and utility business. Warren Buffett also owned 2.5 million Globe Life Inc. (NYSE:GL) shares as of Q2 2023 end, for an average value of $275 million. There's also another insurance stock in Mr. Buffett's portfolio, and you'll have to read further to find out.
In addition to having invested prolifically in the insurance business by owning the second biggest auto insurance company in the U.S., Government Employees Insurance Company (GEICO), Warren Buffett's investment approach also surrounds determining the true, or fair, value of a firm. In simple terms, fair value is what an investor or analyst believes that a company is worth based on its business operations. Companies whose publicly traded value, or the stock price, is higher than this are called overvalued. Those with prices lower than the fair value are dubbed undervalued, and these are often targeted through patiently held investment positions to yield monetary benefits through share price appreciation over an investment horizon.
Continuing with our analysis of Warren Buffett's trading strategies over the years, his top three longest held stocks are American Express Company (NYSE:AXP), The Coca-Cola Company (NYSE:KO), and Moody's Corporation (NYSE:MCO). To understand the benefits of a value based investment approach and the returns that it can yield over time, we don't have to dig too deep into Berkshire Hathaway's investment past. For instance, Mr. Buffett's investment firm has held investment positions in all three of its longest held stocks since 2010. During Q4 2010, the average share prices of Amex, Coca-Cola, and Moody's were $42.19, $31.39, and $26.91, respectively. Their latest closing prices are $154.38, $56.72, and $344.57, respectively. So, if you had owned 1,000 shares of the three in 2010, right now your total investment would have grown by 452% or 4.5 times. In other words, a thousand dollars put into the three companies would now be worth $4,500.
Therefore, it's clear that selecting stocks based on their undervaluation can lead to significant profits in just over a decade. Of course, this depends on a favorable economic environment as well as the absence of black swan events that can dent even the most finely tuned investment portfolio.
Today, we'll look at some undervalued insurance stocks to buy. The top three stock picks in this list are First American Financial Corporation (NYSE:FAF), Equitable Holdings, Inc. (NYSE:EQH), and BRP Group, Inc. (NASDAQ:BRP).
An elderly customer discussing her retirement options with a smiling life insurance agent.
To compile our list of undervalued insurance stocks to buy, we first made a list of all insurance companies with market capitalization greater than $300 million and average analyst ratings of Buy. Then, the ones with the greatest difference between their average share price target and current share price were selected as the undervalued insurance stocks to buy.
11 Undervalued Insurance Stocks To Buy Now
11. Ryan Specialty Holdings, Inc. (NYSE:RYAN)
Share Price Upside: 20%
Ryan Specialty Holdings, Inc. (NYSE:RYAN) is an insurance company that serves the needs of other insurance firms. The firm's third quarter earnings report saw it post a 14.7% annual revenue growth as well as a 30% profit growth due to acquisitions and strong product performance.
During Q2 2023, 14 out of the 910 hedge funds tracked by Insider Monkey had held a stake in Ryan Specialty Holdings, Inc. (NYSE:RYAN). Stuart J. Zimmer's Zimmer Partners is the firm's biggest shareholder in our database as it owns $216 million worth of shares.
Along with Equitable Holdings, Inc. (NYSE:EQH), First American Financial Corporation (NYSE:FAF), and BRP Group, Inc. (NASDAQ:BRP), Ryan Specialty Holdings, Inc. (NYSE:RYAN) is an undervalued insurance stock with strong analyst ratings.
10. AXIS Capital Holdings Limited (NYSE:AXS)
Share Price Upside: 20%
AXIS Capital Holdings Limited (NYSE:AXS) is an insurance and reinsurance company that serves the needs of individuals, businesses, and other insurance companies. Like several other insurance companies, the firm has been performing well financially as of late, as it has beaten analyst EPS estimates in all four of its latest quarters.
After digging through 910 hedge funds for their second quarter of 2023 investors, Insider Monkey discovered that 19 had invested in the company. AXIS Capital Holdings Limited (NYSE:AXS)'s largest hedge fund investor is Richard S. Pzena's Pzena Investment Management due to its $253 million investment.
9. American Financial Group, Inc. (NYSE:AFG)
Share Price Upside: 21%
American Financial Group, Inc. (NYSE:AFG) is an American property and casualty insurance company. As opposed to other insurance companies that reported strong earnings growth during the third quarter, its financials for the time period marked a small $12 million annual growth.
As of June 2023, 17 out of the 910 hedge funds profiled by Insider Monkey had held a stake in American Financial Group, Inc. (NYSE:AFG). Dmitry Balyasny's Balyasny Asset Management owns the biggest stake among these which is worth $39.9 million and comes via 336,462 shares.
8. Kinsale Capital Group, Inc. (NYSE:KNSL)
Share Price Upside: 22%
Kinsale Capital Group, Inc. (NYSE:KNSL) is a small insurance company that provides services in all American states. Its shares are rated Buy on average and analysts have set an average share price target of $412.
For their shareholdings during 2023's second quarter, 27 out of the 910 hedge funds profiled by Insider Monkey had invested in the company. Kinsale Capital Group, Inc. (NYSE:KNSL)'s largest shareholder out of these is Richard Driehaus' Driehaus Capital since it owns 254,350 shares that are worth $95 million.
7. Markel Group Inc. (NYSE:MKL)
Share Price Upside: 23%
Markel Group Inc. (NYSE:MKL) is a global insurance underwriter with operations in nearly every continent. It is also the first stock on our list that is rated Strong Buy on average, with analysts having set a sizeable $194 share price upside through an average share price target of $1,547.
During this year's June quarter, 29 out of the 901 hedge funds surveyed by Insider Monkey were Markel Group Inc. (NYSE:MKL)'s investors. Warren Buffett's Berkshire Hathaway is the firm's biggest hedge fund investor as it owns $652 million worth of shares.
6. Fidelis Insurance Holdings Limited (NYSE:FIHL)
Share Price Upside: 26%
Fidelis Insurance Holdings Limited (NYSE:FIHL) is a small insurance company that has a presence in Bermuda, the U.K., and Ireland. It's also the 'freshest' insurance stock on our list since Fidelis Insurance Holdings Limited (NYSE:FIHL)'s IPO listing took place in June 2023 with the shares falling 6.4% on the day of the debut.
15 out of the 910 hedge funds part of Insider Monkey's Q2 2023 research had bought and owned Fidelis Insurance Holdings Limited (NYSE:FIHL)'s shares.
First American Financial Corporation (NYSE:FAF), Fidelis Insurance Holdings Limited (NYSE:FIHL), Equitable Holdings, Inc. (NYSE:EQH), and BRP Group, Inc. (NASDAQ:BRP) are some undervalued insurance stocks to buy.
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Disclosure: None. 11 Undervalued Insurance Stocks To Buy Now is originally published on Insider Monkey.