4 Insurers Hitting New 52-Week Highs on a Down Day

Includes: AFL, CNO, FFG
by: The Keating Letter

The market dropped more than 1.5% on Tuesday, but there was still considerable strength in a few sectors, primarily those associated with energy and commodities. Outside of sectors that would benefit from inflation and higher oil and natural gas prices because of instability in the Middle East, you can see that a few individual stocks performed well. On such a down day, finding stocks hitting 52-week highs because of their own unique characteristics indicates that those stocks are likely to have found a bottom in their share prices.

These four insurers hit new 52-week highs on Tuesday. In an inflationary environment, insurers will have a tougher time than other industries, so that's why it's interesting to find these names hitting new highs. Let’s take a closer look:

Aflac (NYSE:AFL): Everybody knows the Aflac duck, but do investors know that Aflac is trading significantly lower than its historic Price to Book ratio? P/B is the first thing I like to look at for insurers. While you certainly have to take other factors into consideration, if you find a stock trading significantly below its historic P/B, it’s worth it to look deeper into the name. Here, Aflac’s P/B was consistently near 3 during normal times. Today, it's below 2.5.

Not only that, but revenue per shares has risen for at least the last 10 years and its return on equity has continued to be great. On its most recent conference call, which you can read here, it provides guidance of 8-12% operating earnings growth for 2011. No wonder shares are doing so well. Even as Aflac hits 52-week highs, there still appears to be some room for it to run. Even Yogi Berra could have made money investing in Aflac over the past year. The company provides supplemental life and health insurance products, and primarily operates on the U.S. and Japan.

CNO Financial Group (NYSE:CNO): CNO also supplies supplemental life and health insurance to customers, along with annuities. It was formerly known as Conseco and is based out of Indiana. Shares hit new 52-week highs as the company pre-paid $50 million on a senior secured credit facility. It's been bumping along its highs since February 23, when it announced outstanding earnings. In that report, it announced a $95 million release from reserves and better-than-expected earnings and revenue. While not considered in its adjusted earnings, investment income increased dramatically as well from $14.1 million in 2009 to $125.3 million in 2010.

FBL Financial Group (NYSE:FFG): I admit to not having heard of FBL Financial Group before. It sells life insurance and annuity products in the U.S. Shares have been rising since its February 3 earnings release, where it reported Q4 EPS of $1.67 and full-year EPS of $3.92. Not bad for a stock trading around $30. It also increased its book value 30% over the past year and sports a P/B of 0.8. Typically the stock trades between 0.8 and 1.2 times book value. I don’t blame investors for bidding the shares up to new year highs. Like some of these other names, it appears that there may be a bit more room to run despite hitting new 52-week highs.

Global Indemnity (GBLI): Global Indemnity is a specialty property and casualty insurer. The company is based in Dublin, Ireland and was formerly known as United America Indemnity. Todd Combs, Buffett’s new investment manager, held Global Indemnity and it made up more than 2% of his portfolio. That should tell you this is a value stock, and if you look at its P/B you’ll see why. The stock currently has a P/B of 0.7. Like the other insurers listed here, Global Indemnity announced great earnings on February 16 and shares have spike up since then. CEO Larry Frakes announced 11.3% book value growth in 2010 and increased pricing for the first time in five years.

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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