The insurance industry has a number of tempting investment opportunities, not the least of which is insurance. With a number of great, old companies and new upstarts, this is an excellent source for many investors. A successful stock in this industry is one that displays both growth and dividend gains in a stable package for investors. Today, we will look at investment opportunities with Assurant Inc. (AIZ), Allstate Corporation (ALL), CNO Financial Group Inc. (CNO), First American Corporation (FAF) and Progressive Corporation (PGR), five major investment players that are sparking investor interest.
Assurant Inc. is an international company that offers insurance coverage such as product warranty, medical coverage, precious jewelry and personal property. Stock of the $4 billion company currently trades around $43.50 per share, near the top of its 52-week range of $30.65 - $44.11. The stock has a one-year target estimate of $48.50, and the company pays an annual dividend of $0.72 for a yield of 1.7%.
Although Assurant's quarterly revenue was only up 0.3%, the stock price rose nearly 8% in the past 12 months, and it increased its dividend from $0.70. The company has a very low debt to equity ratio under 20, a price to earnings ratio of 7.x (both forward and trailing) and a price to book ratio of 0.82. Assurant has even entered the mobile world, offering an insurance app for faster claim service. Investors can rest assured that Assurant Inc. is an excellent stock, and I have it rated as a strong buy.
In the insurance business for over 80 years, Allstate is one of the best-known names in the industry. This $15.5 billion company has built a reputation as solid growth stock, coupling steady gains with attractive dividends. Allstate pays a dividend of $0.84, which returns a yield of 2.7%. The stock trades at $31 per share, just over the midpoint of its 52-week range ($22.27 - $34.40), and it has a one-year target of $33.32. The company features an outstanding balance sheet with an A- rating, a low debt to equity ratio of 31.5, and it is trading about 20% above its 200-day moving average.
Allstate is coming off a strong 2011, where it increased its quarterly revenue 2% and its earnings by an impressive 145%. In spite of this success, Allstate stock is still a very reasonable buy. Its price to earnings ratio comes in at a low 7.7, and its price to book ratio of 0.84 also suggests that the stock is undervalued. Featuring the winning combination of growth and dividend gains, investors are putting their portfolio in good hands if they purchase Allstate stock.
CNO Financial Group
CNO Financial Group is an interesting play. Located in Carmel, Ind., CNO is a company that specializes in medical insurance coverage for senior citizens and other demographics in the U.S. As is the case with other small-caps, this $1.7 billion company has been affected by the low US interest rates. This situation is seen by its current share price of just over $7 (while its book value is over $20) and its price to book ratio of a mere 0.36.
Taking note of this severe undervaluing now could be a big benefit for investors. The company's stock price rose more than 11% in the past twelve months, and although its year-to-year revenue dropped slightly (5.7%), CNO Financial's earnings soared an amazing 297%. Add to this fact that the company has levered free cash flow of $1.32 billion, you have a powerful investment at your disposal. I am strongly recommending CNO for new investment.
First American Corporation
Santa Ana, Calif.-based First American Corporation is a financial services company that specializes in title insurance and services, home warranty coverage and specialty insurance. Stock in the $1.5 billion company is currently trading around $14 per share, just above the midpoint of its 52-week range of $10.51 to $17.37. The stock has a one-year target of $15.50 and the company pays a dividend of $0.24 for a yield of 1.6%. The company's numbers are mixed, with drops in quarterly revenue and earnings (3.8% and 36.5%, respectively) offset by a low price to book ratio (0.78) and a very reasonable debt to equity ratio of 14.
A certain amount of uncertainty surrounds First American due to its involvement in the loan processing business. Competitor Lender Processing Services (LPS) has been wracked with charges of document execution fraud and other crimes related to its handling of defaulted mortgages in Nevada. With the widespread nature of the housing bubble experienced in the U.S., this action could affect other companies as well. First American has not been accused. For now, I recommend monitoring this situation before moving on First American, but I also think the company could be a very good future buy.
Progressive Corp is another insurance company that combines growth and dividends in a tasty package for investors. This Mayfield Village, Ohio, company has a capitalization of $13 billion and provides personal and commercial automobile insurance, in addition to specialty property-casualty insurance coverage. The stock is currently trading around $21.50 per share, nearly 10% above its 200-day moving average and near the top of its 52-week range of $16.88 - $22.08. The one-year target for Progressive is $22, and the company is paying a dividend of $0.41 for a yield of 1.9%.
Although its stock price climbed 7.7% in the past 12 months, Progressive is slightly overpriced, as evidenced by a price to book ratio of 2.4 and a price to earnings ratio of 13.4. The company managed to annual revenue growth of 2.3%, even though its quarterly earnings tumbled by 14.2%. After a 6% year-to-year increase in January premiums written, Progressive will be looking to break out and post strong numbers in 2012. Investors should wait to see which way it will turn in the next couple of months, and then consider taking a position.
Looking to Insurance Stocks for Security
Although Wall Street has no sure thing, insurance stocks have often been safe and effective investments. For that reason, I have Assurant Inc, Allstate Corporation and CNO Financial Group Inc as strong buys. I also recommend a short-term hold on First American Corporation and Progressive Corporation, hoping to see them generate some momentum before taking any positions.
About the author:
Vatalyst.comVatalyst articles are written by a team of independent traders from around the world. All of our articles provide actionable investing ideas you can use to make money.