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Insurance stocks, as represented by the SPDR S&P Insurance ETF (NYSEARCA:KIE) have rebounded sharply, up over 200% nadir-to-peak from the lows hit during the 2008-09 crisis when the market collapse forced many insurance companies to write-down the value of their holdings, the most notable among them being giant life and property & casualty insurer American International Group (NYSE:AIG). However, the index has given back roughly a quarter of its gains since the beginning of this year on account of the soft economy and losses on real estate investments.

In this article, we identify the insurance companies that are being accumulated and those being distributed by legendary or guru fund managers such as Warren Buffett, George Soros, Carl Icahn, Steven Cohen and Mario Gabelli, based on our extensive database of the buying and selling activities of over 60+ such managers, and correlate it to their valuation relative to peers in the group. Overall, gurus are bullish on the insurance group. During the June quarter, guru fund managers together added a net $1.90 billion to their prior $15.37 billion position in the group, selling $1.21 billion and buying $3.11 billion worth of stocks in the group. Furthermore, overall they are about equal-weight in the group, and taken together, the 60+ guru funds have invested 4.0% of their assets in the group, slightly less than the 4.1% weighting of the group in the overall market.

The hedge fund and mutual fund managers included in this select group include only high profile names, who by virtue of their long-term market-beating returns, have earned their standing in the investment community and are worthy of our attention. They include well-known names such as those mentioned above, as well as perhaps relatively lesser-known names that also have a stellar long-term history of beating the markets, such as Seth Klarman, John Griffin, Prem Watsa, Robert Karr and Lee Ainslie. The following are the two undervalued insurance stocks that these guru funds are most bullish about (see Table):

American International Group (AIG): AIG is a diversified insurance company that offers group and individual life insurance, annuities and general property and casualty insurance worldwide. Guru funds added a huge $1.93 billion to their $1.12 billion prior quarter position, and taken together guru funds, hold 6.7% of the outstanding shares, significantly more than their 2.6% weighting in the group. The top buyers were T Rowe Price ($57 million) and Vanguard Group ($45 million), and the top holders among guru funds were Fairholme Capital Management ($1.49 billion) and Glenview Capital Management ($246 million), who were also the top holders at $2.6 billion and $246 million respectively. Overall, 440 institutions hold 16.9% of AIG shares, with Fairholme and Franklin Resources Inc. ($434 million) being the top holders with 5.4% and 1.0% of the outstanding shares respectively. AIG trades at a forward 8 P/E, at par with the forward 8 P/E for the Insurance group taken together. Also, it trades at a P/B ratio of 0.5 and a PSR of 0.6, both a discount to the averages of 0.8 and 0.7 respectively for the Insurance group. Furthermore, the price target of Wall Street analysts on AIG is $29, well above the current $23 price; and of the fifteen analysts that cover AIG, four rate it at buy/strong buy, another eleven rate it at hold, and none rates it at underperform/sell.

Allstate Corp. (NYSE:ALL): ALL offers personal property, casualty, life insurance and retirement and other investment products, mainly in the U.S. Guru funds added a net $128 million to their $248 million prior quarter position, and taken together guru funds hold 2.8% of the outstanding shares, slightly more than their 2.6% weighting in the group. The top buyers were Viking Global Investors ($112 million) and Oakmark Funds/ Harris Associates LP ($13 million). Overall, 626 institutions hold 79.7% of ALL shares, with T Rowe Price ($659 million), State Street Corp. ($530 million), and Vanguard Group ($509 million) being the top holders with 5.0%, 4.0% and 3.9% of the outstanding shares respectively. ALL trades at a forward 7 P/E, at the bottom of its historic P/E range and also at a discount to the forward 8 P/E for the Insurance group taken together. Meanwhile, earnings are projected to increase at 14% compounded growth rate from $2.87 in 2010 to $3.70 in 2012. Also, ALL trades at a P/B ratio of 0.7 and a PSR of 0.4, both a discount to the averages of 0.8 and 0.7 respectively for the Insurance group. Furthermore, the price target of Wall Street analysts on ALL is $33, well above the current $26 price; and of the 24 analysts that cover ALL, ten rate it at buy/strong buy, another thirteen rate it at hold, and only one rates it at underperform/sell. Besides AIG and ALL, guru funds are also bullish about (see Table):

MGIC Investment Corp. (NYSE:MTG): MTG offers private mortgage insurance for homeowners that put down less than 20% down payment when purchasing their homes. Guru funds added a net $2 million to their $60 million prior quarter position, and taken together, guru funds hold 12.3% of the outstanding shares, significantly more than their 2.6% weighting in the group. The top holders were RS Investment Management ($22 million), Blue Ridge Capital Holdings ($21 million) and Platinum Investment Management ($17 million). Overall, 236 institutions hold almost all of MTG shares, with RS Investment and Blue Ridge being the top holders with 5.1% and 4.9% of the outstanding shares respectively. MTG currently loses and is projected to keep losing money at least till 2012. It trades at a P/B ratio of 0.4 and a PSR of 0.3, both a discount to the averages of 0.8 and 0.7 respectively for the Insurance group. Furthermore, the price target of Wall Street analysts on MTG is $6, well above the current $2.50s price; and of the ten analysts that cover MTG, eight rate it at buy/strong buy, another one rates it at hold, and only one rates it at underperform/sell. The following are Insurance stocks that guru fund managers are most bearish about (see Table):

MetLife Inc. (NYSE:MET): MET offers life, non-medical health, auto and home-owners insurance, annuities and financial services. This is a large new $58 million conviction buy. Guru funds cut a net $241 million from their $646 million prior quarter position, and taken together guru funds hold 1.1% of the outstanding shares, significantly less than their 2.6% weighting in the group. The top sellers were Viking Global Investors ($127 million), First Eagle Investment Management ($49 million) and Kingdon Capital Management ($38 million). Overall, 812 institutions hold 73.7% of MET shares, with State Street Corp. ($1.39 billion) and Vanguard Group ($1.28 billion) being the top holders with 4.0% and 3.7% of the outstanding shares respectively. MET trades at a forward 6 P/E, at the bottom of its historic P/E range, and also well below the forward 8 P/E for the Insurance group taken together, while earnings are projected to increase at 11% compound growth rate from $4.43 in 2010 to $5.44 in 2012. Also, MET trades at a P/B ratio of 0.6 and a PSR of 0.6, both well below the averages of 0.8 and 0.7 respectively for the Insurance group. Furthermore, the price target of Wall Street analysts on MET is $44, well above the current $34 price; and of the 21 analysts that cover MET, 19 rate it at buy/strong buy, two rate it at hold, and none rates it at underperform/sell.

Genworth Financial Inc. (NYSE:GNW): GNW is a leading U.S.-based international insurance company offering life and long-term care insurance, annuities, asset management services and mortgage insurance worldwide. Guru funds cut a net $116 million from their $252 million prior quarter position, and taken together guru funds hold 4.6% of the outstanding shares, significantly more than their 2.6% weighting in the group. The top sellers were RS Investment Management ($79 million) and Perry Corp. ($59 million). Overall, 360 institutions hold 90.6% of GNW shares, with Fidelity Investments ($252 million) and NWQ Investment Management ($241 million) being the top holders with 8.8% and 8.5% of the outstanding shares respectively. GNW trades at a forward 5 P/E, at the bottom of its historic P/E range, and also well below the forward 8 P/E for the Insurance group taken together, while earnings are projected to increase at 122% compound growth rate from 26c in 2010 to $1.28 in 2012. Also, GNW trades at a P/B ratio of 0.2 and a PSR of 0.3, both well below the averages of 0.8 and 0.7 respectively for the Insurance group. Furthermore, the price target of Wall Street analysts on GNW is $9, well above the current $6 price; and of the fourteen analysts that cover GNW, three rate it at buy/strong buy, eight rate it at hold, and three rate it at underperform/sell.

AFLAC Inc. (NYSE:AFL): AFL is a provider of health, accident, disability and life insurance in the U.S. and Japan. Guru funds cut a net $90 million from their $467 million prior quarter position, and taken together guru funds hold 1.8% of the outstanding shares, less than their 2.6% weighting in the group. The top sellers were Capital Growth Management ($78 million) and Legg Mason Capital Management ($43 million). Overall, 801 institutions hold 61.8% of AFL shares, with Fidelity Investments ($252 million) and NWQ Investment Management ($241 million) being the top holders with 8.8% and 8.5% of the outstanding shares respectively. AFL trades at a forward 7 P/E, at the bottom of its historic P/E range, and also below the forward 8 P/E for the Insurance group taken together, while earnings are projected to increase at 10% compound growth rate from $5.53 in 2010 to $6.64 in 2012. Also, AFL trades at a P/B ratio of 1.5 and a PSR of 0.9, both well above the averages of 0.8 and 0.7 respectively for the Insurance group. Furthermore, the price target of Wall Street analysts on AFL is $53, well above the current $45 price; and of the 21 analysts that cover AFL, 14 rate it at buy/strong buy, seven rate it at hold, and none rate it at underperform/sell.

XL Group Plc (NYSE:XL): XL offers insurance and reinsurance to industrial and service firms and insurance companies worldwide. Guru funds cut a net $28 million from their $127 million prior quarter position, and taken together guru funds hold 1.6% of the outstanding shares, less than their 2.6% weighting in the group. The top seller was SAC Capital Advisors ($24 million). Overall, 320 institutions hold 90.9% of XL shares, with Paulson & Co ($591 million) and Barrow Hanley Mewhiney & Strauss ($468 million) being the top holders with 8.8% and 7.0% of the outstanding shares respectively. XL trades at a forward 9 P/E, slightly above the forward 8 P/E for the Insurance group taken together, while earnings are projected to decrease slightly from $2.40 in 2010 to $2.36 in 2013. Also, XL trades at a P/B ratio of 0.7 and a PSR of 1.0, as compared to the averages of 0.8 and 0.7 respectively for the Insurance group. Furthermore, the price target of Wall Street analysts on XL is $25, well above the current $21 price; and of the 18 analysts that cover XL, eight rate it at buy/strong buy, ten rate it at hold, and none rate it at underperform/sell.

Unum Group (NYSE:UNM): UNM offers group and individual disability insurance and group life insurance, mainly in the U.S. and U.K. Guru funds cut a net $8 million from their $77 million prior quarter position, and taken together guru funds hold 1.9% of the outstanding shares, less than their 2.6% weighting in the group. The top seller was Zweig-DiMenna Associates ($7 million). Overall, 402 institutions hold 91.5% of UNM shares, with Wellington Management ($616 million) and Fidelity Investments ($598 million) being the top holders with 8.9% and 8.6% of the outstanding shares respectively. UNM trades at a forward 7 P/E, slightly below the forward 8 P/E for the Insurance group taken together, while earnings are projected to increase at 10% compound growth rate from $2.69 in 2010 to $3.27 in 2012. Also, UNM trades at a P/B ratio of 0.8 and a PSR of 0.7, at par with the averages of 0.8 and 0.7 respectively for the Insurance group. Furthermore, the price target of Wall Street analysts on UNM is $28, well above the current $22 price; and of the 16 analysts that cover UNM, six rate it at buy/strong buy, ten rate it at hold, and none rate it at underperform/sell. Table General Methodology and Background Information: The latest available institutional 13-F filings of over 60+ legendary or guru hedge fund and mutual fund managers were analyzed to determine their capital allocation from among 50+ different industry groupings, and to determine their favorite picks and pans in each group. Each guru has been carefully selected based on their long-term performance and standing in the investment community. Furthermore, the credentials of most of the 60-odd guru funds that justify their inclusion in this elite group were detailed in our previous articles, many of which can be accessed by clicking on the hyperlinks referencing them in the above Table and in article.

These legendary or guru fund managers number less than one percent of all funds and yet they control almost ten percent of the U.S. equity discretionary fund assets. The argument is that institutional investors have the resources and the access to information, knowledge and expertise to conduct extensive due diligence in informing their investment decisions. When high alpha generating or guru Institutional Investors by virtue of their fund performance, low volatility and elite reputation in the investment community, invest and maybe even converge on a specific investment idea, the idea deserves consideration for further investigation. The savvy investor may then leverage this information either as a starting point to conduct his own due diligence or even go as far as constructing a model diversified portfolio based on the guru funds best picks.

Disclaimer: Material presented here is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock you should do your own research and reach your own conclusion. Further, these are our ‘opinions’ and we may be wrong. We may have positions in securities mentioned in this article. You should take this into consideration before acting on any advice given in this article. If this makes you uncomfortable, then do not listen to our thoughts and opinions. The contents of this article do not take into consideration your individual investment objectives so consult with your own financial adviser before making an investment decision. Investing includes certain risks including loss of principal.

Source: 8 Undervalued Insurance Stocks That Are Being Bought Or Sold By Hedge Fund Managers