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Allstate (NYSE:ALL) shares are down 19% in 2007 on general financial sector weakness and concerns about its subprime exposure. Barron's says its shares look cheap, considering the company's limited downside risk, and growth potential should financial stocks rebound.

Its book value of just 1.4x is at historical lows, as is its price/earnings multiple of 7.6 for 2007 and 7.9 on 2008 projected earnings. "Allstate is cheap," says Citigroup's Joshua Shanker. "Allstate is a much less risky company than it was five years ago, and its brand equity continues to grow." A Credit Suisse report notes Allstate's "effort to reduce its risk profile, the highest dividend yield among large-capitalization peers, a larger share-repurchase program than that of others, and continued high-single-digit growth in book value." Allstate has returned an impressive 21% on equity YTD, and that could easily be higher if the company were to divest its low-margin life insurance unit as some investors have suggested.

While competitors AIG (NYSE:AIG), Chubb (NYSE:CB) and Travelers (NYSE:TRV) all sport similarly deflated book-value and price-earnings ratios, Allstate's strength in auto insurance, which doesn't face the same level of pricing pressure as other areas, are what sets it apart, Barron's says. Auto policies are responsible for about two-thirds of its projected $27 billion of 2007 premiums and an even bigger percentage of its profits. Allstate's $4.5 billion of subprime-mortgage securities have some investors concerned, but CEO Thomas Wilson insists the firm is evaluating its exposure appropriately. Barron's says shares "could easily rise 25% in the next year."

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Source: Allstate: Potential Reward Outweighs Risk - Barron's