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3 Insurance Stocks to Invest In Now

Vince Martin

At the moment, insurance stocks look like an intriguing group for value investors looking for stocks to buy. Financials across the board have fallen, with several insurers hitting multi-year lows in the past few months. Yet, looking forward, there are reasons to expect the group to outperform.

Interest rates should rise, recent Fed commentary aside, and financials and insurers typically win when that happens. Higher rates mean higher returns on an insurance company’s ‘float’ — and more profits for shareholders.

Insurance stocks also are defensive — an attractive characteristic in a volatile market. And while investor attention since the US election has been focused on high-growth tech and booming cyclicals, there’s a case that insurers simply have been forgotten. In a more cautious market, that should no longer be the case.

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All told, the insurance group looks intriguing. Investors can play the space through ETFs such as the SPDR S&P Insurance ETF (NYSEARCA:KIE). But these three insurance stocks to buy should get at least a long look as well.


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The Hartford Financial Services Group (HIG)

The case for The Hartford Financial Services Group (NYSE:HIG) is reasonably simple. First, HIG stock is cheap, trading at less than 9x 2019 EPS estimates. Even in the context of a sector that usually gets low multiple, that valuation looks far too conservative.

Hartford also has benefits on the way from its pending acquisition of The Navigators Group (NASDAQ:NAVG), a marine-focused insurer. With 2020 EPS – boosted by a full year of Navigators Group financials – likely to clear $5, HIG trades at something like 8x earnings while offering a dividend yield that could reach 3% next year.

There are risk. First, Hartford’s property and casualty business has benefited from lower catastrophe costs of late – which may reverse. The company’s mutual fund business gives it exposure to the equity markets – which have been roiled of late. And competition remains intense, which can pressure both pricing and revenue.

Still, with HIG touching a 30-month low last month, much of the bad news looks priced in. Sector-wide and M&A tailwinds are not. At the moment, HIG looks like one of the better “buy the dip” candidates among financials.


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Chubb (CB)

The case for Chubb (NYSE:CB) is similar to that for HIG – with perhaps lower risk and lower rewards. Like The Hartford, Chubb is a property and casualty insurer. Like HIG, CB stock has pulled back, dropping 18%+ from early 2018 highs and touching a multi-year low late last year.

But Chubb is larger – and could potentially take market share from smaller players like The Hartford. Chubb also has a long history of being more conservative – which gives some comfort as its price-to-book ratio nears 1.1x.

With a dividend yield of 2.3%, CB isn’t going to make investors rich overnight. But there’s a nice case here of a fair – and maybe cheap – price for a wonderful business. Chubb increases its dividend every year, generally grows earnings, and should hold up even if broad markets take another leg down. It’s a nice combination for near-term – and long-term – outperformance.


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MetLife (MET)

Investors looking for more risk, and higher potential gains, in financials and insurers should look to MetLife (NYSE:MET). MetLife ran into trouble beginning in late 2017. The company said it had lost some 600,000 customers who were owed pension payments, which sparked investigations from state regulators.

A month later, the company had to delay its earnings report as it disclosed material weakness in internal controls. For an insurer, that type of error obviously raises red flags: MET stock unsurprisingly slid on the news.

And MET stock has continued sliding for much of 2018. But the news actually has been better. Earnings, starting with a Q4 report that answered at least some of the concerns, have been solid. The pension issue appears mostly resolved. A new CEO will bring fresh eyes next year. Meanwhile, MET stock trades at a noted discount to past valuation, with price-to-book just 0.84x and the dividend yield near 4%.

Again, this is a high-risk play by the standards of the insurance space. There’s the obvious “never one cockroach” concern after the accounting issues. But the rewards here are big too: if MetLife can convince investors it’s back on track, shareholders will be getting not just a strong dividend, but a stock that has appreciated nicely.

As of this writing, Vince Martin has no positions in any securities mentioned.

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