Insurance firms play a critical role in the financial system, offering everything from property coverage to life insurance and specialized risk solutions. Still, investors are uneasy as insurers face challenges from catastrophic events and potential regulatory changes. These doubts have caused the industry to lag recently as insurance stocks have collectively shed 2% over the past six months. This drop was disheartening since the S&P 500 gained 6.2%.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. On that note, here is one insurance stock boasting a durable advantage and two we’re passing on.
Two Insurance Stocks to Sell:
Equitable Holdings (EQH)
Market Cap: $12.28 billion
Tracing its roots back to 1859 as one of America's oldest financial institutions, Equitable Holdings (NYSE: EQH) provides retirement planning, asset management, and life insurance products through its two main franchises, Equitable and AllianceBernstein.
Why Is EQH Not Exciting?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 2.5% for the last five years
- Expenses have increased as a percentage of revenue over the last two years as its pre-tax profit margin fell by 13.3 percentage points
- Annual book value per share declines of 167% for the past five years show its capital management struggled during this cycle
At $43.25 per share, Equitable Holdings trades at 5.9x forward P/E. To fully understand why you should be careful with EQH, check out our full research report (it’s free).
Fidelity National Financial (FNF)
Market Cap: $12.81 billion
Issuing more title insurance policies than any other company in the United States, Fidelity National Financial (NYSE: FNF) provides title insurance and escrow services for real estate transactions while also offering annuities and life insurance through its F&G subsidiary.
Why Is FNF Risky?
- Insurance policy sales contracted this cycle as net premiums earned decreased by 2.5% annually over the last five years
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 3.5% annually while its revenue grew
- Flat book value per share over the last five years suggests it must find different ways to enhance shareholder value during this cycle
Fidelity National Financial’s stock price of $46.11 implies a valuation ratio of 1.3x forward P/B. Check out our free in-depth research report to learn more about why FNF doesn’t pass our bar.
One Insurance Stock to Buy:
Skyward Specialty Insurance (SKWD)
Market Cap: $2.06 billion
Founded in 2006 to serve markets where standard insurance coverage falls short, Skyward Specialty Insurance (NASDAQ: SKWD) provides customized commercial property, casualty, and health insurance solutions for underserved or specialized market niches.
Why Will SKWD Outperform?
- Net premiums earned surged by 27.6% annually over the past two years, reflecting strong market share gains this cycle
- Revenue outlook for the upcoming 12 months is outstanding and shows it’s on track to gain market share
- Annual book value per share growth of 26% over the last two years was superb and indicates its capital strength increased during this cycle
Skyward Specialty Insurance is trading at $55.41 per share, or 1.8x forward P/B. Is now the right time to buy? Find out in our full research report, it’s free.
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