These insurance stocks are cheap by the standards of the Benjamin Graham value methodology: they’re selling below book with low price-earnings ratios and they’re paying dividends to investors. As markets in hot growth sectors eventually begin to fade, longer-term money may find its way into these types of equities.
Assured Guaranty (AGO, Financial) is a New York Stock Exchange traded insurance company based in Bermuda. It is now available for purchase at a 38% discount to its book value. That, plus a price-earnings ratio of 12.56, places it in the “value stock” realm, especially with the Shiller price-earnings ratio for the S&P 500 up near 40 right now.
This year’s earnings per share growth comes in at 4.4%. The EPS growth for the past five years is -10%. The price-to-free-cash-flow ratio is a low 2.6. Assured Guaranty pays a dividend yield of 1.64%. Average daily volume is a relatively light 438,000 shares. The GuruFocus financials summary finds one good sign, six warning signs and for severe warning signs for the stock.
Mercury General (MCY, Financial) sells property and casualty insurance. It has its headquarters in Brea, California and operations around the country. At this price, it’s selling for just 73% of its book value and price-earnings ratio of 7.61. Investors receive a 4.79% dividend, a better yield than that offered by the 10-year U.S. Treasury note.
The earnings per share increased this year by 17%. The five-year rate of EPS growth is 38%. Average daily volume is definitely light for an NYSE-listed equity: 154,000 shares. The GuruFocus summary of financials finds four good signs and one severe warning sign.
Stewart Information Services
Stewart Information Services (STC, Financial), based in Houston, is another property and casualty insurance company that also trades on the New York Stock Exchange with relatively light average daily volume of 128,000 shares. It’s priced at a 34% discount to its book value. The price-earnings ratio is 7.06.
The earnings per share grew this year at a solid 87.9% and the EPS growth rate over the past five years is 91.3%. Stewart Infomation Services offers investors a 1.7% dividend yield. The GuruFocus summary of its financials shows one good sign and five medium warning signs.
The Travelers Companies
The Travelers Companies (TRV, Financial) is yet another property and casualty insurer, this one with headquarters in Hartford, Connecticut. The price-earnings ratio is 11 and the stock trades at 1.37 times book value. Earnings per share increased this year by 6%. The past five-year record of EPS growth is -0.70%.
The Travelers Companies pays a 2.24% dividend. Average daily volume is enough that institutional investors can probably participate comfortably: it’s 1.15 million shares. The GuruFocus summary of financials finds two good signs and five medium warning signs.
For good reading on a process to help identify these types of value stocks, I recommend to find and read “The Intelligent Investor” by Benjamin Graham, the father of value investing and
Warren Buffett (Trades, Portfolio)’s teacher at Columbia University. The best version of the book is the one with the introduction by veteran business journalist Jason Zweig.
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