Top Dividend Paying Undervalued Insurance Sector Picks Of Legendary Fund Managers

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Includes: AFL, AIG, ALL, BRK.B, GNW, HIG, MET, MTG, PGR, PRU, TMK, TRV
by: GuruFundPicks

The average insurance company, as represented by the SPDR S&P Insurance ETF (NYSEARCA:KIE), is up about 10% YTD and approaching multi-year highs, as the immense write-downs taken during the 2008-09 recession become a fading memory. While current growth is sluggish due to the weak economy, a high unemployment rate, and fiscal challenges, it is generally expected that the sector will start improving in the second half of 2012.

In this article, via an analysis based on the latest available Q4 institutional 13-F filings, we identify the insurance sector 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, that are well-known for their savvy in picking winning stocks year after year. Taken together, these guru managers are bearish on the group, cutting a net $833 million in Q4 to their $27.43 billion prior quarter holdings in the group (for more general information on these guru funds, please look at the end of the article).

The following are the insurance sector companies that these guru fund managers are most bullish about, and that are also trading at a discount to the peers in their group, and that also pay a dividend (see Table):

Prudential Financial Inc. (NYSE:PRU): PRU is one of the largest financial services institutions in the U.S. It offers life insurance, annuities, mutual funds and retirement products in the U.S., Europe, Asia and Latin America. Guru funds together added a net $318 million in Q4 to their $410 million prior quarter position in the company, and taken together guru funds hold 2.6% of the outstanding shares. The top buyer was hedge fund guru Andreas Halvorsen's Viking Global Investors ($237 million), also the top holder at $237 million.

PRU has a dividend yield of 2.5% versus the 1.9% average for its peers, and it also trades at discount 7-8 forward P/E and 0.7 P/B versus averages of 10.1 and 0.8 for its peers in the multi-line insurance group.

MetLife Inc. (NYSE:MET): MET offers life, non-medical health, auto and home-owners insurance, annuities and financial services. Guru funds together added a net $40 million in Q4 to their $515 million prior quarter position in the company, and taken together guru funds hold 1.5% of the outstanding shares. The top buyer was Viking Global Investors ($149 million), and the top holders were Viking Global ($149 million) and value investment management firm Pzena Investment Management, with $14.7 billion in assets under management ($131 million).

MET has a dividend yield of 2.1% versus the 1.9% average for its peers in the multi-line insurance group, and it also trades at discount 6-7 forward P/E and 0.6 P/B versus averages of 10.1 and 0.8 for its peers in the group.

Torchmark Corp. (NYSE:TMK): TMK offers individual life and supplemental health insurance, including juvenile and senior life coverage. Guru funds together added a net $37 million in Q4 to their $409 million prior quarter position in the company, and taken together guru funds hold 9.3% of the outstanding shares. The top buyer was legendary billionaire investor Ken Griffin's Chicago-based hedge fund Citadel ($47 million), and the top holders were Warren Buffett's Berkshire Hathaway ($204 million) and San Francisco, CA-based mutual fund company RS Investment Management, with $10.5 billion in 13-F assets ($116 million).

TMK trades at a discount 8-9 forward P/E and 1.2 P/B compared averages of 10.3 and 0.7 for its peers in the life insurance group, and it also sports a dividend yield of 1.2% compared to the 1.7% average for its peers in the group.

The following are some additional insurance companies that guru fund managers accumulated in Q4 (see Table):

  • Berkshire Hathaway Inc. (NYSE:BRK.B), a publicly owned investment manager, led by legendary investor Warren Buffet, that through its subsidiaries engages in the insurance and reinsurance of property and casualty risks business, in which guru funds together added a net $174 million in Q4 to their $619 million prior quarter position;
  • MGIC Investment Corp. (NYSE:MTG), that offers private mortgage insurance for homeowners that put down less than 20% down payment when purchasing their homes, in which guru funds together added a net $19 million in Q4 to their $70 million prior quarter position; and
  • Genworth Financial Inc. (NYSE:GNW), a leading U.S.-based international insurance company offering life and long-term care insurance, annuities, asset management services and mortgage insurance worldwide, in which guru funds together added a net $11 million in Q4 to their $168 million prior quarter position.

Besides these, guru fund managers based on their Q4 trading activity indicated that they are bearish on the following insurance companies (see Table):

  • American International Group (NYSE:AIG), a diversified insurance company that offers group and individual life insurance, annuities and general property and casualty insurance worldwide, in which guru funds together cut a net $331 million in Q4 from their $4.01 billion prior quarter position;
  • Allstate Corp. (NYSE:ALL), a provider of personal property, casualty, life insurance and retirement and other investment products, mainly in the U.S., in which guru funds together cut a net $215 million in Q4 from their $1.06 billion prior quarter position in the company;
  • Progressive Corp. Ohio (NYSE:PGR), that offers private passenger automobile insurance policies in all 50 states and D.C., in which guru funds together cut a net $76 million in Q4 from their $293 million prior quarter position in the company.
  • AFLAC Inc. (NYSE:AFL), a provider of health, accident, disability and life insurance in the U.S. and Japan, in which guru funds together cut a net $65 million in Q4 from their $497 million prior quarter position in the company;
  • Travelers Companies Inc. (NYSE:TRV), a provider of commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals primarily in the U.S., in which guru funds together cut a net $40 million in Q4 from their $1.73 billion prior quarter position in the company; and
  • Hartford Financial Services Group (NYSE:HIG) offers individual and group life, group disability and property and casualty insurance products, primarily in the U.S., in which guru funds together cut a net $38 million in Q4 from their $1.02 billion prior quarter position in the company.

Table

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Credit: Fundamental data in this article were based on SEC filings, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.

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

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