Fed Hikes Rates: Pick 6 Value Stocks From Insurance Industry

The Fed has kept its promise of three rate hikes this year. With the latest hike of 25 basis points at its recently concluded FOMC (Federal Open Market Committee) meeting, the interest rate now stands at 1.25-1.50%. Previous rate increases were made in March and June, respectively.

On a positive note, Fed Chairperson Janet Yellen reiterated the expectation to raise rates thrice in 2018 and twice in 2019.

The Fed also provided an optimistic unemployment outlook. While the Fed officials expect the employment rate for 2017 at 4.1%, the same is expected to decline to 3.9% in 2018 and 2019. The employment data is also encouraging with 228,000 jobs added in November. Also, Trump’s tax reform policy, which lowers corporate tax burden once implemented, is likely to act as an impetus.

Further good news is that economic figures instill hopes. The Fed now estimates GDP to grow at 2.5% in both 2017 and 2018, reflecting an increase from 2.4% for 2017 and 2.1% for 2018, projected earlier. However, inflation is expected to remain below 2% through the next year. The same is estimated to be approximately 2% from 2019 onward.

With the improving rate environment, investment income — an important component of insurers’ top line — is also exhibiting improvement. Life insurers having suffered a spread compression on products like fixed annuities and universal life due to persistently low rates have started to benefit. In addition, investment yield is likely to have risen. Annuity sales, too, should have gained from higher rates.

Advantages of the improving rate could already be seen in the insurers’ results. Progressing economy, encouraging employment data, stringent underwriting standards as well as capital influx infuses confidence in investors.

Amid an improving macro backdrop, investors always look eagerly to add stocks with strong fundamentals, which are likely to generate better yields.

It’s every investor’s wish to invest in currently undervalued stocks with great growth potential. Value investors always yearn to put their money on stocks that tend to trade at a lower price or at a value, lower than the intrinsic one. Whereas, growth investors look for stocks with an earnings increase relatively better than the market. Therefore they ideally search for value stocks to reap better returns.

Choosing the Right Stocks

It’s a daunting task to zero in on stocks, currently undervalued yet with a high-growth offer. The Zacks Stock Screener makes this work relatively simpler. Back-tested results have shown that stocks with Value Scores of A or B combined with a Zacks Rank #1 (Strong Buy) or 2 (Buy) offer the best upside potential.

We have shortlisted six insurance stocks with a market capitalization of at least $1 billion and an expected long-term earnings growth rate of 9% or more. These stocks sport a Zacks Rank of 1 or 2 and carry a Value Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Based in Los Angeles, CA, Mercury General Corp. (NYSE:MCY) writes personal automobile insurance in the United States apart from homeowners, commercial automobile, commercial property, mechanical breakdown and umbrella insurance. With a market capitalization of $29.1 billion, the company’s expected long-term earnings growth rate is currently pegged at 26.5%. The stock carries a Value Score of B and is a Zacks #2 Ranked player.

Headquartered in Branchville, NJ, Selective Insurance Group, Inc. (NASDAQ:SIGI) provides insurance products and services in the United States. The company has a market capitalization of $3.4 billion and its expected long-term earnings growth rate is pegged at 12.2%. The stock carries a Value Score of A and is a #2 Ranked player.

Headquartered in Duluth, GA Primerica, Inc. (NYSE:PRI) distributes financial products to middle income households in the United States and Canada. The company has a market capitalization of $4.6 billion and its expected long-term earnings growth rate currently stands at 10%. The stock carries a Value Score of B and the same bullish Zacks Rank as the above two.

Headquartered in Birmingham, AL, Infinity Property and Casualty Corp. (NASDAQ:IPCC) provides personal automobile insurance products in the United States The company has a market capitalization of $1.2 billion and its expected long-term earnings growth rate is pegged at 9%. The stock carries a Value Score of B and is a Zacks #1 Ranked player.

Headquartered in Chesterfield, MO, Reinsurance Group of America, Inc. (NYSE:RGA) offers individual and group life and health insurance products. The company has a market capitalization of $10.2 billion and its expected long-term earnings growth rate stands at 9%. The stock carries a Value Score of A and has a Zacks Rank #2.

Based in New York, NY, MetLife, Inc. (NYSE:MET) provides life insurance, annuities, employee benefits and asset management products in the United States, Japan, Latin America, Asia, Europe and the Middle East. The company with a market capitalization of $55.6 billion has an expected long-term earnings growth rate of 9%. The stock carries a Value Score of A and has a Zacks Rank of 2.

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