4 Value Picks for Growth Investors to Dodge the Soft Market
We shortlisted four insurers FNF, WRB, LNC and UVE that have the potential to offer better returns to investors.
Although the major indices exhibited a bullish run in the first couple of trading sessions in September, they started losing steam on Sep 3. Since then, the S&P 500 has lost nearly 1%, the Dow Jones Industrial Average and the Nasdaq Composite have declined 1.4% and 1.9%, respectively.
September has historically been the sluggish month for the stock market. While several theories for this uncanny phenomenon have been doing the rounds, the most common notion is that investors take time off during the summer months, leading to an overall decline in trading volumes. Further, apprehensions over rising coronavirus cases due to the Delta variant loom large. Stock Trader’s Almanac shows that September has been the weakest month for the S&P 500 since 1950 and since 1971 for Nasdaq.
The insurance industry seems well-poised for growth amid this volatility, capitalizing on the favorable operating environment. The insurance gained 13.9% year to date after a tumultuous 2020 due to the COVID-19 pandemic.
The economy has been growing at a steady pace as evident from the GDP that increased at an annualized rate of 6.5% in the second quarter. Encouraging economic growth outlook by the Fed instills further confidence. As the insurance industry is an important contributor to the country’s GDP, it is poised for growth given the economic expansion.
It is worth mentioning that non-life insurer’s profitability is affected by catastrophic occurrences. Per Colorado State University, the Atlantic has already had five named storms and one hurricane through Aug 4. It estimates 13 additional storms, seven hurricanes and four major hurricanes. Hurricane Ida, which made a landfall on Aug 29 and already wreaked havoc, is estimated to cost about $18 billion in insurance and reinsurance loss to the industry as per catastrophe risk modelling specialist, Karen Clark & Company.
Thus, price hikes and prudent underwriting approach are crucial to insurers’ efforts to stay afloat. Per Marsh, global commercial insurance prices witnessed the 15th straight quarter of rate hike. According to Willis Towers Watson’s 2021 Insurance Marketplace Realities report, except for one, 29 lines of business are expected to witness price rise this year.
Insurance industry is rate sensitive. Hence, a low-rate environment weighs on its investment income. Insurers are directing their funds into alternative investments like private equity, hedge funds, real estate, among others, to counter the challenge as the rate is estimated to remain low until 2023.
Increased adoption of technologies like blockchain, AI, advanced analytics, telematics, cloud computing, and robotic process automation has been aiding in seamless underwriting and claims processing, and improving operational efficiency.
Given a solid capital level, mergers and acquisition activities have increased, enabling the industry players to gain market share and grow in niche areas.
It might be an uphill task to pick the right stocks for greater investment rewards. With the help of our Zacks Stock Screener we identified the best bets.
We shortlisted four stocks, each has a Zacks Rank #2 (Buy), an impressive Growth Score and a Value Score of A or B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Growth Score analyzes the growth prospects of a company. Back-tested results show that stocks with an attractive.
Value Score identifies stocks that are undervalued. These value stocks have a long history of showing superior returns.
These stocks have also witnessed northbound estimate revisions in the past 60 days, reflecting analysts’ confidence in the companies’ operational efficiency.
Fidelity National Financial FNF: Jacksonville, FL based Fidelity National Financial provides various insurance products in the United States.
Its leading market share in the residential purchase, refinance and commercial markets, efforts to diversify from core title insurance business, industry-leading margins, and solid capital position bode well for growth.
Estimates for its 2021 and 2022 bottom line have jumped over the past 60 days by 21% and 12.1%, respectively. The Zacks Consensus Estimate for 2021 earnings indicates an improvement of 24% year over year.
W.R. Berkley Corporation WRB: Greenwich, CT. based W.R. Berkley is one of the nation’s largest commercial lines property casualty insurance providers. It has been benefiting from its insurance business. This insurer is likely to continue gaining from its well-performing insurance business.
Rate increases, reserving discipline, and growing premiums from international business, primarily supported by the emerging markets of the U.K., Continental Europe, South America, Canada, Scandinavia, Asia and Australia augur well.
Estimates for 2021 and 2022 bottom line have moved north by 12.4% and 7.8%, respectively, in the last 60 days. The Zacks Consensus Estimate for 2021 and 2022 earnings indicates year-over-year increase of 91.4% and 8.3%, respectively. The expected long-term earnings growth rate is 9%.
Lincoln National Corporation LNC: Philadelphia, PA-based Lincoln National is a diversified life insurance and investment management company. This insurer’s top line is likely to benefit from sales growth, new product introduction and enhancement of existing ones, and change in business mix. Streamlining its businesses to exit non-core and less profitable ones positions it well for growth.
Acquisition of Liberty Mutual's group benefits business positioned the company as a Group Benefits market leader by enhancing Large Case presence and Disability expertise, complementing current markets with limited sales overlap.
Estimates for 2021 and 2022 earnings have moved north by 12.3% and 4.4%, respectively, in the last 60 days. The Zacks Consensus Estimate for 2021 and 2022 bottom line suggests year-over-year growth of 131.9% and 7.8%, respectively. The expected long-term earnings growth rate is 40.1%.
Universal Insurance Holdings UVE: Fort Lauderdale, FL -based Universal Insurance boasts a leading holding company of personal residential homeowners insurance and services.
Prudent underwriting, rate increase, opportunistic growth in Florida and other states, and accelerated use of digital technology bodes well for growth.
A strong reinsurance program supports a resilient balance sheet.
Estimates for 2021 and 2022 bottom line have moved north by 6.2% and 2.1%, respectively, in the last 60 days. The Zacks Consensus Estimate for 2021 and 2022 earnings indicates year-over-year growth of 366.7% and 2.1% respective year over year increase.
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Lincoln National Corporation (LNC): Free Stock Analysis Report
W.R. Berkley Corporation (WRB): Free Stock Analysis Report
Fidelity National Financial, Inc. (FNF): Free Stock Analysis Report
UNIVERSAL INSURANCE HOLDINGS INC (UVE): Free Stock Analysis Report
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