4 Insurance Stocks To Buy Before A Rate Hike

Will the Federal Open Market Committee (FOMC) make any positive change to the interest rate in the meeting scheduled on Jun 15? While this is anybody’s guess, the Fed decision is being eagerly waited for.

When everyone predicted an increase in the rate in the Sep 2015 FOMC meeting, the Fed decided against it. However, after a period of prolonged near zero interest rate, the Fed chose to raise the rates to only 0.25–0.50% at its December meeting. While the federal funds rate was kept the same at the Mar 2016 meeting, uncertainties over further rate hikes were removed. In fact, the Fed lowered the median forecast for the number of rate hikes this year to two from four projected at its meeting last December.

Nevertheless, the rate environment is still low. But comments from St. Louis Fed President James Bullard is definitely drawing attention. In an interview to CNBC, Bullard said, “A U.S. Federal Reserve rate hike in June or July wasn't set in stone, but labor data suggested it was time to pull the trigger.” As per the Bureau of Labor Statistics, total nonfarm payroll employment in April increased by nearly 0.2 million while the unemployment rate remained unchanged at 5%. Other factors that might act as gunpowder are the easing of the U.S. dollar, momentum in oil prices and inflation approaching 2% as noted by Eric Rosengren, the president of the Federal Reserve Bank of Boston.

It is to be noted that the June meeting will be before the U.S. presidential election and will thus attract eyeballs. However, James Bullard does not think that the election will have any impact on the Fed’s decision of hiking rates.

Interest rate directly impacts the investment results of a company. For insurance companies, investment income forms a major revenue component. A low rate puts pressure on investment income and in turn on investment yields. Life insurers, in particular, suffer spread compression on products like fixed annuities and universal life due to sustained low rates. Hence any increase in the interest rate would bring some respite for insurers.

But it’s not that a low interest rate regime does not bring any fortunes for insurance companies. These generally hold a considerable amount in bonds, which would see a decline in value if rates rise.

So since insurance stocks are poised for growth no matter what the Fed chooses to do, the space is bound to attract attention. We have picked four solid operators in the space that have the potential to boost one’s portfolio even more. We refined our search using the VGM score, a favorable Zacks Rank, attractive price-to-earnings (P/E) and positive estimate revisions. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores.

4 Stocks with Winning Potential

Birmingham, AL, Torchmark Corp. (NYSE:TMK) provides annuities, whole and term life insurance, accidental death insurance, health insurance, Medicare supplements, and long-term healthcare policies. Torchmark has a Zacks Rank #3 (Hold) and a VGM Score of A. The company has expected earnings growth of 5.5% for the current year. The forward P/E ratio is 13.6, which is lower than the industry average of 17.0. Notably, the stock has been witnessing upward estimate revisions (up 1.14% for 2016 and 0.9% for 2017 over the last 30 days).

Pembroke, Bermuda based Argo Group International Holdings, Ltd. (NASDAQ:AGII) is a global underwriter of specialty insurance and reinsurance products in the property and casualty market. Argo Group has a Zacks Rank #3 and a VGM Score of A. The company has expected earnings growth of 5.8% for this year. The forward P/E ratio is 14.9, which is lower than the industry average of 17.0. The stock has been witnessing upward revisions in estimates (up 3.4% for 2016 and 4.6% for 2017 over the last 30 days).

Bloomfield, CT based Cigna Corp. (NYSE:CI) through its subsidiaries is a major providers of health care and related benefits, the majority of which are offered through workplace. Cigna has a Zacks Rank #3 and a VGM Score of A. The company has expected earnings growth of 7.1% for the current year. The forward P/E ratio is 14.5, which is lower than the industry average of 17.0. The stock has seen its estimates moving up (up 0.7% for both 2016 and 2017 over the last 30 days).

Springfield, Ill based Horace Mann Educators Corporation (NYSE:HMN) primarily focuses on educators' financial needs, providing auto, homeowners and life insurance, retirement products and other financial solutions. Horace Mann also has a Zacks Rank #3 and a VGM Score of A. The company has expected earnings growth of 7.1% for the current year. The forward P/E ratio of 14.6 is lower than the industry average of 17.0. The stock has been witnessing upward estimate revisions (up 3.1% for 2016 and 1.9% for 2017 over the last 30 days).

TORCHMARK CORP (TMK): Free Stock Analysis Report

CIGNA CORP (CI): Free Stock Analysis Report

HORACE MANN EDS (HMN): Free Stock Analysis Report

ARGO GROUP INTL (AGII): Free Stock Analysis Report

Original post

Zacks Investment Research