3 Insurance Stocks We Think Twice About
Insurance companies serve as the backbone of risk management, providing essential protection and financial security for individuals and businesses. But concerns about claims severity and tightening regulations have tempered enthusiasm, limiting the industry’s gains to 3.1% over the past six months. This return lagged the S&P 500’s 5.8% climb.
While some insurers have strong balance sheets and diversified product offerings that enable them to thrive in any environment, the odds aren’t great for the ones we’re analyzing today. Taking that into account, here are three insurance stocks that may face trouble.
Allstate (ALL)
Market Cap: $55.56 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 Does ALL Give Us Pause?
- Estimated sales growth of 2.8% for the next 12 months implies demand will slow from its two-year trend
- Annual book value per share growth of 3.4% over the last five years lagged behind its insurance peers as its large balance sheet made it difficult to generate incremental capital growth
Allstate’s stock price of $216.00 implies a valuation ratio of 1.7x forward P/B. Check out our free in-depth research report to learn more about why ALL doesn’t pass our bar.
Lemonade (LMND)
Market Cap: $5.25 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 Is LMND Not Exciting?
- Performance over the past two years shows its incremental sales were less profitable, as its 15.8% annual earnings per share growth trailed its revenue gains
- Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 5.9% annually over the last five years
- Negative return on equity shows that some of its growth strategies have backfired
At $68.99 per share, Lemonade trades at 11.8x forward P/B. If you’re considering LMND for your portfolio, see our FREE research report to learn more.
Assured Guaranty (AGO)
Market Cap: $3.74 billion
Serving as a financial safety net for over $11 trillion in debt service payments since its founding in 2003, Assured Guaranty (NYSE:AGO) provides credit protection products that guarantee scheduled payments on municipal bonds, infrastructure projects, and structured finance obligations.
Why Should You Dump AGO?
- Net premiums earned contracted by 4.8% annually over the last five years, showing unfavorable market dynamics this cycle
- Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment
- Earnings per share have contracted by 8.7% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
Assured Guaranty is trading at $83.39 per share, or 0.6x forward P/B. To fully understand why you should be careful with AGO, check out our full research report (it’s free).
Stocks We Like More
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