The new GuruFocus bubble chart can "bubble-up" interesting opportunities for subscribers to explore further. Take a look at the chart below, which I have set to show insurance companies. The bubble chart can map stocks in three dimensions. To make this chart, I set the X-axis to show the price-book ratio and the Y-axis to show the 10-year book value growth on a per-share basis. The bubble size represents the relative market cap.
The reason I chose book value as the key metric is because insurance companies live or die by the strength of their balance sheet and book value, and the price-book ratio is a key measure of balance sheet strength for them Also, the growth of book value provides a valuable measure of how fast the company can grow considering its profitability. For example, if an insurance company grows too fast but compromises on profitability, its book value per share will suffer. I think a 10-year period to assess growth is enough to smooth over periods of temporary weakness and strength.
The chart threw up a few interesting companies which are selling for low price-book ratios and high book growth rates. Ping-An Insurance (PNGAY, Financial) stands out with exceedingly high book growth of ~20% and a price-book ratio of 1.17. However, the Chinese insurance and financial companies are currently very uncertain due to the recent collapse of the Evergrande (HKSE:03333, Financial) real estate group and the uncertainty surrounding where the losses will end up. Many of these companies may have lent money to Evergrande and similar real estate companies, and since investors are not certain how much losses they may have to sustain, they are staying away from these companies.
Please also note that I excluded Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial) from this analysis as the company is so large and diverse that it overpowered the chart.
One company I want to highlight is Aflac Inc. (AFL, Financial), a U.S.-based insurer. The company has a price-book ratio of 1.12 and a very impressive book growth rate of 14.3% per annum. Aflac's operations are focused in the U.S. and Japan. The company is a true compounder with a high single digit stock price growth over extended periods of time. Its financial strength is rated "A" by Value Line with a three-to-five-year target price of between $70 to $100. The price-earnings ratio is very reasonable at less than 10, especially given the growth in book value.
Aflac also looks undervalued on a five-year median price-book ratio, as per the chart below.
The company also pays a nice and growing 2.3% dividend and continues to buy back stock. Overall, Aflac looks like a solid insurance company with a great record of accomplishment, and I think it is undervalued at current levels.
