7 Hugely Undervalued Insurance Stocks Poised To Surge In 2021

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These incredible insurance stock bargains won’t stay cheap for long.

High-flying tech companies like Tesla (NASDAQ:TSLA) and Airbnb (NASDAQ:ABNB) may be garnering all the headlines today… but some of the best opportunities can be found in one area that most investors have been completely missing: insurance stocks.

Over the last several months, insurance stocks have quietly become some of the best bargains in the markets with a few of the most highly profitable companies selling at massively discounted prices.

Want proof?

Let’s take a look at automaker Tesla.  It has a market cap of over $578 billion and reported net income of $331 million in the third quarter of 2020.  

Meanwhile, auto-insurer Progressive has a market cap of $55 billion and reported net income of $1.53 billion in the same quarter.  Although Progressive made 4.5x more money, it trades for one tenth the value of Tesla.

But here’s the most interesting thing that most investors don’t realize.

Tesla delivered 139,593 vehicles in Q3 2020, which works out to $2,371 in profit per vehicle.

However, the average cost of car insurance for a Tesla is $4,539 per year.  

If you take Progressive’s net margin of 14% in Q3, this means that the insurance company makes around $635 in profit per year for every Tesla vehicle they insure.  

In fact, over the course of 4 years, Progressive actually makes more profit from each Tesla than Tesla does itself!

Of course, this basic, back-of-the-napkin math ignores many important factors and considerations.  For example, Tesla is now offering its own car insurance and Progressive’s margins often fluctuate from quarter-to-quarter.

Nevertheless, this is just an example of how well-run insurance operations can become cash-printing machines.  Furthermore, the best companies have large economic moats which are extremely difficult to compete against.  

Whether they’re companies that cover home, auto, life, or commercial insurance, there’s a lot of money to be made by finding the best insurance stocks available today.  Over time, their consistently strong profits will be reflected in rising share prices in the future.

With that being said, here are seven must-own insurance stocks that are deeply undervalued today but have strong upside for 2021 and beyond.

  1. Progressive Corp. (NYSE:PGR)
  2. Allstate Corp. (NYSE:ALL)
  3. The Travelers Companies Inc. (NYSE:TRV)
  4. Cincinnati Financial Corp. (NASDAQ:CINF)
  5. CNA Financial Corp (NYSE:CNA)
  6. Alleghany Corp. (NYSE:Y)
  7. Berkshire Hathaway (NYSE:BRK.B)

Progressive Corp. (NYSE:PGR)

The Progressive Corporation was founded in 1937 and is headquartered in Mayfield, Ohio.  The company underwrites personal and commercial auto insurance, residential property insurance, and other specialty property-casualty insurance and related services primarily in the U.S.

In Q3 2020, PGR reported premiums written of $9.974 billion and YOY growth of 10.67%.

Progressive stock currently has a price to earnings (P/E) ratio of 10.94 and a price to book (P/B) ratio of 3.13.

Allstate Corp. (NYSE:ALL)

Based in Northbrook, Illinois, Allstate Corp. was founded in 1931 and is one of the largest property-casualty insurers in the U.S.  Although personal auto represents the largest percentage of revenue, the company also provides home, renters, business, life, pet, phone, and many other insurance products to customers.

In Q3 2020, ALL reported consolidated revenue of $11.5 billion which was 3.9% higher than Q3 2019.

Allstate stock currently has a P/E ratio of 7.32 and a P/B ratio of 1.26, making it one of the cheapest stocks on this list.

The Travelers Companies Inc. (NYSE:TRV)

Founded way back in 1853 and based in New York, New York, Travelers offers a broad range of products to businesses, government units, associations, and individuals in the U.S. and abroad.  Its commercial insurance lines focus on serving mid-size businesses and offers a variety of coverage types. Its personal insurance lines cover auto and homeowners insurance. Policies are distributed via a network of more than 11,000 brokers and independent agents.

TRV recently reported its Q3 2020 results, with total premiums reaching $7.771 billion, which grew 3% YOY compared with $7.569 billion in Q3 2019. 

Travelers stock currently has a P/E ratio of 15.62 and a P/B ratio of 1.26.

Cincinnati Financial Corp. (NASDAQ:CINF)

Cincinnati Financial Corporation is a property casualty insurer that sells a variety of products in the U.S.  The company was founded in 1950 and is headquartered in Fairfield, Ohio.  CINF has 5,148 full-time employees and operates in five segments: Commercial Lines Insurance, Personal Lines Insurance, Excess and Surplus Lines Insurance, Life Insurance, and Investments. 

In Q3 2020, Cincinnati Financial’s earned premiums reached $1.522 billion – representing 5% growth YOY from Q3 2019.

CINF stock has a P/E ratio of 16.52 and a P/B ratio of 1.33.

CNA Financial Corp (NYSE:CNA)

Headquartered in Chicago, Illinois, CNA Financial Corporation was founded in 1853 and currently operates as a subsidiary of Loews Corporation.  With a $10.2 billion market cap, it is Lowes’ largest subsidiary and mainly focuses on property and casualty insurance for small businesses and medium scale organizations.  CNA Financial operates through five segments: Specialty, Commercial, International, Life & Group, and Corporate & Other segments.

For the 3 months ended September 30, 2020, CNA reported net earned premiums of $1.953 billion, up 3% YOY from $1.890 billion in Q3 2019.

CNA stock has a P/E ratio of 17.63 and a P/B ratio of 0.82.

Alleghany Corp. (NYSE:Y)

Alleghany Corp is a property and casualty insurance company that was founded in 1929 and is based in New York, New York.  It owns and manages subsidiaries that operate reinsurance and insurance operations. The company also executes certain private capital investments. Alleghany’s three reportable segments are reinsurance, insurance, and Alleghany Capital.

In the third quarter of 2020, Alleghany reported net premiums written of $1.637 billion.  This was up 15.8% from the third quarter 2019 when the company reported net premiums written of $1.413 billion.

Alleghany reported a net loss over the last 2 quarters and currently has a P/B ratio of 0.98.

Berkshire Hathaway (NYSE:BRK.B)

For our final undervalued insurance stock, we’re profiling Warren Buffett’s Berkshire Hathaway. 

Berkshire is a holding company with a wide array of subsidiaries engaged in diverse activities, but the main engine behind its growth is insurance.  The firm’s main insurance subsidiaries include Geico, Berkshire Hathaway Reinsurance Group, and Berkshire Hathaway Primary Group.

In addition to the company’s sizable investment portfolio, the company also owns many businesses, including Burlington Northern Santa Fe, Berkshire Hathaway Energy, Precision Castparts, Lubrizol, Clayton Homes, Marmon, and IMC/ISCAR, among others.

In the third quarter of 2020, BRK’s insurance operations earned premiums of $15.913 billion, which was up 3.85% YOY from the $15.323 billion reported in Q3 2019.

Berkshire Hathaway stock currently has a P/E ratio of 15.05 and a P/B ratio of 1.29.  Generally, BRK stock is undervalued when it’s trading below 1.4 x book value.


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-Investing Insider Magazine

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