Allstate: A Cheap Valuation And Strong Chart Make It A Buy

Sep. 19, 2022 11:44 AM ETThe Allstate Corporation (ALL)IAK, XLF, SPY


  • The Financials sector is perking up as a spot of relative strength in recent months.
  • The Allstate Corporation is one of several insurance-industry companies that exhibit relative strength.
  • Fundamentally, the firm trades at a very attractive forward P/E ratio.

Katrina Damage May Bring A Record $26 Billion In Insurance Claims

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What stocks are holding up well in this current market volatility? That is often a good question active investors should ask themselves when sifting through the carnage to find good long opportunities.

Take a look at what’s happening within the Financials sector. Insurance stocks keep seeing buyers pop up. The iShares U.S. Insurance ETF (IAK) is down just 3% over the past six months, beating the SPDR Financial Sector ETF (XLF). Both funds are outperforming the S&P 500 Trust ETF (SPY). One major insurance stock, popular in TV commercials, is up over that timeframe.

Spotting Relative Strength: Insurance Stocks In Favor

Spotting Relative Strength: Insurance Stocks In Favor

According to Bank of America Global Research, Allstate (NYSE:ALL) is the largest publicly-traded personal lines insurance company, with about 10% of the personal lines market (1 in 8 households). Allstate is primarily a captive agency writer. Besides a full array of personal lines P/C products (preferred, standard and nonstandard auto insurance, and homeowners' insurance), the company also offers life insurance and annuity products. Its scale and product design should allow for strong returns in the personal lines insurance area. Moreover, ALL’s auto insurance business generates solid returns. Improving fundamentals in the home insurance space is bullish, too. Downside risks could arise from lower overall interest rates and negative impacts from rising auto accident numbers. It's also unknown how autonomous vehicle progression impacts ALL's business.

The Illinois-based $35 billion market cap Insurance industry company within the Financials sector trades at a high 39 trailing 12-month GAAP price-to-earnings ratio and pays an above-market average 2.6% dividend yield, according to The Wall Street Journal.

On valuation, BofA sees this year's EPS dip as a blip on the radar. Earnings per share should rise substantially in 2023 and 2024. The Bloomberg consensus forecast generally backs up BofA’s estimates. Dividend investors can also look optimistically on ALL shares as dividends per share are seen as rising over the next two fiscal years. Using forward operating and GAAP earnings figures for 2023, ALL, in fact, trades at a very low P/E ratio.

ALL Earnings, Valuation, Dividend Forecasts

ALL: Earnings, Valuation, Dividend Forecasts

BofA Global Research

Looking ahead, Allstate’s corporate event calendar is light until its Q3 earnings date, which is unconfirmed to take place on Wednesday, November 2 after market close, according to Wall Street Horizon. There is a dividend payable date on October 3.

Corporate Event Calendar

Corporate Event Calendar

Wall Street Horizon

The Technical Take

Allstate boasts tremendous relative strength thus far in 2022. Shares have returned more than 12% - compare that to its industry ETF, of which it is a 6% holding, which is up a fraction more than 1% year-to-date.

ALL’s chart shows some resilience on an absolute basis, too. Shares peaked in April above $140, but then dropped to a low near $111 by the summer. A bullish double bottom was set in place between July and August, then a higher low was made earlier this month before the stock jumped on big volume to finish off last week. This is not the kind of price and volume action we see in most parts of the equity market.

If ALL can climb above the key $133 resistance level, I think it will make a run at its all-time high notched back in April. Buying on a close above $133 would make sense or a long position now with a stop under $119 could play as well.

ALL: $133 Resistance After A Bullish Double Bottom

ALL: $133 Resistance After A Bullish Double Bottom

The Bottom Line

Allstate’s low valuation using normalized earnings, its relative strength vs the overall market, and a decent-looking absolute chart make me bullish on shares. Financials look to be a good spot to have exposure to, and insurance stocks in particular look good. Allstate is a solid play for such exposure.

This article was written by

CFA & CMT Charterholder | Freelance Financial Writer at SoFi & Ally | Investments | Markets | Personal Finance | RetirementI create written content used in various formats including blogs, emails, white papers, and social media for financial advisors and investment firms in a cost-efficient way. My passion is putting a narrative to financial data. Working with teams that include senior editors, investment strategists, marketing managers, data analysts, and executives, I contribute ideas to help make content relevant, accessible, and measurable. Having expertise in thematic investing, market events, client education, and compelling investment outlooks, I relate to everyday investors in a pithy way. I enjoy analyzing stock market sectors, ETFs, economic data, and broad market conditions, then producing snackable content for various audiences. Macro drivers of asset classes such as stocks, bonds, commodities, currencies, and crypto excite me. I truly enjoy communicating finance with an educational and creative style. I also believe in producing evidence-based narratives using empirical data to drive home points. Charts are one of the many tools I leverage to tell a story in a simple but engaging way. I focus on SEO and specific style guides when appropriate. My CFA and CMT backgrounds demonstrate prowess in investment management and my professional experience includes extensive public speaking and communication. Moreover, my extensive university teaching and professional trading experience provide useful skills. Past roles also include heavy use of Excel modeling and chart creation as well as PowerPoint.I am a contributor to The Dividend Freedom Tribe. I am a contributor to Topdown Charts.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within 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.

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