Imagine owning stocks for less than they’re worth and, at the same time, owning them as they’re hitting new high prices. It doesn’t happen too often, but it is happening right now for those who’ve been astute enough to invest in American Equity Investment Life Insurance (AEL, Financial). Below book value, hitting new highs and paying dividends - what a combination!
American Equity Investment Life Insurance describes itself as a “a retirement income provider specializing in fixed index annuities that are designed to protect principal and guarantee income.” Based in West Des Moines, Iowa, the company has a market capitalization of $4.23 billion.
The stock trades at a price-earnings ratio of 11.86, a low metric when compared to the Shiller price-earnings ratio for the S&P 500, which sits this week at 36.50. American Equity’s stock is available for purchase at just 62% of its book value. The price-sales ratio is 1.06 and the price-to-free-cash-flow ratio is 2.43, which are all relatively low metrics that possibly indicate value as well.
Earnings per share this year increased by 157.70%. Wall Street expects a positive year coming up, but not at that torrid pace. The past five-year EPS growth rate for American Equity is 20.50%.
Those investors who own shares of the company receive a $0.34 per share quarterly dividend for an annualized yield of 0.80%.
The GuruFocus summary of financials shows one good sign and six medium warnings signs for the stock:
Here’s how the financial stregth indicators measure up:
The company's financials chart shows a fortress-like balance sheet, with cash greatly exceeding debt. However, it is earning very little return on invested capital (ROIC) compared to weighted average cost of capital (WACC), so its growth may not be profitable.
American Equity Life’s weekly price chart looks like this:
As we can see, it’s been hitting new highs, and the price continues to stay above the up-trending 50-day moving average (the black line) and the 200-day moving average (the green line). There are no guarantees that this kind of bullish action can continue, but the movement does speak to the direction of the trend.
The life insurance and annuity business is highly competitive. Some of American Equity’s rivals include National Western Life Group (NWLI, Financial), Genworth Financial (GNW, Financial), CNO Financial (CNO, Financial) and Unum Group (UNM, Financial).
