The Bottom Fishing Club: Allstate

Summary

• Allstate holds a diverse asset base to underpin its insurance operations.
• The company has a long history of outperforming insurance industry peers.
• Operating returns and margins have been improving the last five years.
• The Federal Reserve is now effectively backstopping many of the bond and loan markets owned by Allstate.
• The sharp 40% sell-off in early 2020 has pushed the company into a long-term undervalued position vs. price to trailing sales and book value.

The Allstate Corporation (NYSE:ALL) is one of the largest property and casualty insurance operations in the United States and Canada. The Allstate Protection segment accounted for 90% of 2019 consolidated insurance premiums and contract charges. The company is a top four North American underwriter of auto, homeowners, plus personal and commercial insurance products offered through agencies and online selling. Life insurance and financial investment products represent another 4% of revenues. Identity protection and specialized roadside service contracts account for another 3%, while accidental death and short-term disability products fill out the other 3%. The company employed about 30,000 agents writing 113 million policies last year.

Image Source: Allstate 2019 10-K

Allstate is a "steady as she goes" blue-chip enterprise for investors to consider. The company's well-diversified revenue stream and asset/liability backdrop make it a great idea to consider, especially during a recession and uncertain economic future. Is it a high growth darling? No. Is it completely insulated from the coronavirus slowdown? No. Will it provide long-term investors with average to better-than-average total returns vs. the S&P 500 at its current quote? Probably.

Image Source: Company Website

You can see below how Allstate's price performance has outgained the vast majority of U.S. stocks on a 1-year and 10-year basis compared to peer S&P 500 blue-chips or smaller-cap rivals for your investment capital in the Russell 2000 index.

In addition, compared to larger diversified insurance peers, Allstate has been a leader for performance, only rivaled by less diversified Progressive (PGR). Chubb (CB), MetLife (MET), Travelers (TRV), and Hartford (HIG) investors have not kept up with Allstate's profitable pace of gains the past decade.

Balance sheet ready for turmoil?

One important reason Allstate has done well over the years is its conservative balance sheet, including diversified asset ownership. Nearly $120 billion in assets, funded from premiums received

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in ALL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This writing is for informational purposes only. All opinions expressed herein are not investment recommendations, and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisor capacity and is not a registered investment advisor. The author recommends investors consult a qualified investment advisor before making any trade. This article is not an investment research report, but an opinion written at a point in time. The author's opinions expressed herein address only a small cross-section of data related to an investment in securities mentioned. Any analysis presented is based on incomplete information, and is limited in scope and accuracy. The information and data in this article are obtained from sources believed to be reliable, but their accuracy and completeness are not guaranteed. Any and all opinions, estimates, and conclusions are based on the author's best judgment at the time of publication, and are subject to change without notice. Past performance is no guarantee of future returns.