CFRA Research says these insurance stocks are undervalued.
The insurance business is a relatively defensive industry that typically remains stable during fluctuations in the overall economy. Insurance companies make money selling policies, but they also profit by investing the money they take in. Rising interest rates are good news for the typical insurance company, and insurers selling products guaranteeing a set return benefit the most from higher rates. Elevated inflation levels have many investors anticipating much higher interest rates around the corner at some point. Here are eight of CFRA’s top insurance stocks to buy in the second half of 2021.
Chubb Ltd. (ticker: CB)
Chubb is the world’s largest publicly traded property and casualty insurance company. CFRA analyst Catherine Seifert says Chubb has demonstrated positive pricing momentum in recent quarters, and COVID-19 claims have moderated. She says Chubb is among the industry leaders in underwriting and is poised to gain market share from competitors in the aftermath of the pandemic. CFRA projects net premium growth of 6% to 10% in 2021 and 2022, and Seifert is forecasting $11.35 in 2021 earnings per share, up 16.9% from 2019 levels. CFRA has a “buy” rating and a $185 price target for CB stock.
Marsh & McLennan Cos. Inc. (MMC)
Marsh & McLennan is one of the world’s largest insurance brokers, providing insurance, investment management and consulting services. Seifert says Marsh & McLennan will benefit from post-crisis demand for risk management and transfer services while avoiding the claim costs facing many underwriters. Seifert says Marsh & McLennan has room for margin expansion and share buybacks. She projects revenue growth of at least 6% in 2021 and an additional 5% in 2022. Seifert says Marsh & McLennan shares are undervalued relative to peers, and solid pricing and demand trends could be bullish catalysts. CFRA has a “buy” rating and a $150 price target for MMC stock.
Aon PLC (AON)
Aon is a professional services and consulting firm that specializes in risk management, retirement and health care services. On July 26, Aon announced that its proposed merger with Willis Towers Watson PLC (WLTW) had been canceled after the U.S. Justice Department filed an antitrust lawsuit in June. Seifert says the timing of the antitrust suit was strange, given that the deal was announced 15 months ago. However, she says stand-alone Aon is still well positioned to benefit from a favorable insurance pricing environment, a rebound in consulting services demand and ongoing restructuring actions. CFRA has a “buy” rating and a $275 price target for AON stock.
MetLife Inc. (MET)
MetLife is a diversified U.S. life insurance and financial services provider. In April, MetLife completed the $3.94 billion sale of its property and casualty business to Farmers Group Inc. Seifert says the property and casualty exit helps streamline MetLife’s business mix and reduce its interest rate sensitivity. Seifert projects operating revenue growth of at least 6% in 2021 and 5% in 2022. A recovering U.S. labor market should catalyze group life sales, and Seifert says rising demand for pension risk transfer products should boost retirement products earnings growth. CFRA has a “buy” rating and a $74 price target for MET stock.
American International Group Inc. (AIG)
American International Group is a multiline insurance company with a global property and casualty presence. In July, AIG announced a deal with The Blackstone Group Inc. (BX) to sell 9.9% of its life and retirement, or L&R, unit for $2.2 billion. The deal also established a strategic asset management agreement under which Blackstone will manage $50 billion in L&R assets. AIG will also sell affordable housing assets to Blackstone for $5.1 billion. Seifert says AIG’s restructuring efforts, including the Blackstone deal, are a bullish catalyst for AIG shares. CFRA has a “buy” rating and a $58 price target for AIG stock.
Prudential Financial Inc. (PRU)
Prudential Financial specializes in insurance, investment management and other financial services. Seifert says Prudential shares are undervalued relative to its peers and its own historical valuation. She says growth trends in asset management and retirement savings are bullish catalysts. In addition, Prudential’s international insurance unit differentiates it from peers and should be a long-term growth source, she says. Seifert forecasts at least 3% operating revenue growth in 2021 and 2022 and says earnings per share will rebound to $12.95 this year. CFRA has a “buy” rating and a $115 price target for PRU stock.
Allstate Corp. (ALL)
Allstate is the largest publicly traded personal lines property and casualty insurer. The company recently announced a deal to sell 80% of its life insurance business to Blackstone for $2.8 billion. Seifert upgraded Allstate following news of the life insurance exit and a $3.1 billion asset writedown in the first quarter. She says the company now has more capital to devote to its higher-return property and casualty business, and the stock could potentially reduce its valuation discount relative to peers if Allstate can increase its return on equity. CFRA has a “strong-buy” rating and a $160 price target for ALL stock.
Willis Towers Watson PLC (WLTW)
Willis Towers Watson is the third-largest global insurance broker. Seifert says the Justice Department’s suit to block the Willis-Aon tie-up creates near-term uncertainty surrounding the stock and the company’s planned asset sales to satisfy European antitrust regulators. However, she says Willis is a solid long-term investment as a stand-alone company, given the strong insurance pricing environment and the rising demand for risk transfer and consulting services. In addition, Seifert says restructuring efforts have increased pretax margins by nearly 2% and return on equity by roughly 3.5%. CFRA has a “buy” rating and a $270 price target for WLTW stock.
Insurance stocks to buy before interest rates rise:
— Chubb Ltd. (CB)
— Marsh & McLennan Cos. Inc. (MMC)
— Aon PLC (AON)
— MetLife Inc. (MET)
— American International Group Inc. (AIG)
— Prudential Financial Inc. (PRU)
— Allstate Corp. (ALL)
— Willis Towers Watson PLC (WLTW)
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8 Insurance Stocks to Buy Before Interest Rates Rise originally appeared on usnews.com