Insurance firms play a critical role in the financial system, offering everything from property coverage to life insurance and specialized risk solutions. But concerns about claims severity and tightening regulations have tempered enthusiasm, and over the past six months, the industry has pulled back by 3.4%. This drop is a stark contrast from the S&P 500’s 6.9% gain.
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:
MetLife (MET)
Market Cap: $55.42 billion
Founded in 1863 by a group of New York businessmen during the Civil War era, MetLife (NYSE: MET) is a global financial services company that provides insurance, annuities, employee benefits, and asset management services to individuals and businesses worldwide.
Why Is MET Risky?
- Net premiums earned only expanded by 2.7% annually over the last five years, trailing its insurance peers as its scale limited incremental business
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 10.8% annually
- Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 10.8% annually over the last five years
MetLife’s stock price of $86.25 implies a valuation ratio of 2x forward P/B. Check out our free in-depth research report to learn more about why MET doesn’t pass our bar.
Lemonade (LMND)
Market Cap: $4.29 billion
Built on the principle of giving back unused premiums to charitable causes selected by policyholders, Lemonade (NYSE: LMND) is a technology-driven insurance company that offers homeowners, renters, pet, car, and life insurance through an AI-powered digital platform.
Why Does LMND Fall Short?
- Incremental sales over the last two years were less profitable as its 17% annual earnings per share growth lagged its revenue gains
- Policy losses and capital returns have eroded its book value per share this cycle as its book value per share declined by 18.4% annually over the last five years
- Negative return on equity shows that some of its growth strategies have backfired
Lemonade is trading at $55.41 per share, or 8.6x forward P/B. To fully understand why you should be careful with LMND, check out our full research report (it’s free).
One Insurance Stock to Watch:
Allstate (ALL)
Market Cap: $57.49 billion
Born from a Sears, Roebuck & Co. initiative during the Great Depression with its famous "You're in good hands" slogan, Allstate (NYSE: ALL) is one of America's largest personal property and casualty insurers, offering protection for autos, homes, and personal property.
Why Are We Positive on ALL?
- 9.4% annual revenue growth over the last five years surpassed the sector average as its policies resonated with customers
- Share buybacks catapulted its annual earnings per share growth to 139%, which outperformed its revenue gains over the last two years
- Balance sheet strength has increased this cycle as its 34.9% annual book value per share growth over the last two years was exceptional
At $222.33 per share, Allstate trades at 1.7x forward P/B. Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More
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