2 Insurance Stocks To Consider, 3 To Avoid

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 |  Includes: AIZ, HIG, MET, PFG, UNM
by: Insider Monkey

Goldman Sachs published a report entitled "Americas: Insurance: Life" on January 9, 2012. In their report, Christopher Giovanni and Ying Hua discuss how macroeconomic headwinds and depressed valuations are going to be responsible for the restructuring of companies. Goldman Sachs is expecting "an acceleration of strategic reviews" which will be responsible for numerous changes. It is also of the opinion that life insurers are "embracing change."

Hartford Financial Services (NYSE:HIG) provides insurance and financial services on a global basis. Its rating has been upgraded from neutral to a buy rating by Goldman Sachs. More than 30% of Hartford Financial Services' commercial business consists of the small commercial space, where better pricing trends are expected. These trends are not adequately reflected in the valuation of the company's stock, according to Goldman Sachs. If the company's valuation remains constantly depressed, it may cause a split between its property and casualty business and its life companies. This move is expected to increase shareholder value, according to Goldman Sachs. Hartford Financial Services has also been quite aggressive in its buyback program.

The American International Group (NYSE:AIG) is a competitor of Hartford Financial Services. Hartford Financial Services reported a gross margin of 28% as compared to the 13% reported by the American International group. It also reported higher operating margins and had a price-to-earnings ratio of 7.6x versus the 5.7x shown by the American International Group. Shares of the company are currently trading at $17.6 per share and are expected to reach a price target of $23, indicating a potential upside of around 31%.

MetLife, Inc. (NYSE:MET) provides insurance, annuities, and employee benefit programs. Goldman Sachs has upgraded its rating from neutral to a buy rating due to a significant number of positive catalysts in the near future. The company's plans to shrink sales along with a comprehensive assessment of its business will lead to freeing up of additional capital and increase focus on its higher returning global initiatives. MetLife is expecting to buy back shares between $1 and $1.5 billion. The current CEO of the company is also looking to fill key management positions in MetLife so that the company may develop its global business profile.

Prudential Financial, Inc. (NYSE:PRU) is a competitor of MetLife. Currently, MetLife is showing greater operating and gross margins than Prudential Financial. MetLife also has a greater price-to-sales ratio of 0.57x versus Prudential's price-to-sales ratio of 0.4x. Shares of MetLife are trading at $34.7 per share and are expected to reach a target price of $41, indicating a potential upside of 18%. John Paulson had $131 million invested in MetLife at the end of the third quarter.

Assurant, Inc. (NYSE:AIZ) provides specialized insurance products and related services. It has been downgraded to a neutral rating by Goldman Sachs. Assurant is expected to show favorable Q4 results with limited catastrophes and substantial buybacks. The company's earnings are not very volatile, but its Special Property earnings are not expected to normalize in the near term. Goldman Sachs expects Assurant to repurchase around 20% of its market capitalization through the fourth quarter of 2011 till the end of 2012. An increase in buyback expectations is likely to limit performance. Shares of the company are currently trading at $38 per share and are expected to reach a price target of $43, indicating a potential upside of 14%. Ken Griffin's Citadel had $62 million invested in Assurant at the end of the third quarter.

Principal Financial Group, Inc. (NYSE:PFG) provides of retirement savings, investment, and insurance products. Goldman Sachs has downgraded its rating to a neutral from a buy because of an absence of short-term catalysts. Also, Goldman Sachs believes that despite an active management in 2012, large-cap deployment is going to decelerate for the company. Principal Financial is a more defensive company because of its lower interest rate sensitivity. According to Goldman Sachs, the company's higher margin businesses are going to generate positive flows; giving rise to a growth in earnings and an increase in its return-on-equity. Shares of the company are currently trading at $25.70 per share and are expected to reach a price target of $29. The price target implies a potential upside of around 13%. D.E. Shaw is among the hedge funds that are bullish about PFG.

Unum Group (NYSE:UNM) is a provider of group and individual disability insurance products. It has been downgraded to a neutral rating from a buy rating due to the uncertainty regarding its capital deployment. Goldman Sachs believes that Unum has less interest rate sensitivity than its competitors. Also, the company's management expects earnings growth to be reduced from 6% to 4% on account of low investible cash flows and a widening of interest margins. The company is expecting headwinds to its top line opportunities due to an absence of wage inflation or payroll expansion. There is a possibility of losses in Unum's U.S. disability business, according to Goldman Sachs. Shares of Unum are currently trading at $21.90 per share and are expected to reach a price target of $25.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.