2020 turned the world upside down. The coronavirus pandemic took a toll on businesses around the world, and many companies found their stocks beaten down due to government-required shutdowns. While some industries saw companies bounce back quickly, like tech stocks, other industries weren't as fortunate, like those in travel or finance. Financial stocks faced challenges across the board due to disruptions in services provided to customers, coupled with a low-interest-rate environment.
While we're not in the clear yet, vaccine distribution is well under way and the end of the pandemic is in sight. Nevertheless, there are still great companies trading at deeply discounted values -- like Navient (NAVI 0.22%), Aflac (AFL 0.34%), and Morgan Stanley (MS 0.79%) -- that will all benefit from return to normalcy in a post-pandemic world.
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Navient
Navient is a provider of student loans, and it struggled last year as borrowers went into forbearance. At its worst, the company saw 28.5% of its federal loan borrowers and 14.7% of its private loan borrowers in forbearance in the second quarter. As the year went on, those figures improved to 13.8% and 3.9% on federal and private loans, respectively.
Navient expects to see lingering effects from the pandemic through the first six months of 2021. It expects to see higher charge-offs during the year, going from 0.88% in 2020 to about 1.5% to 2% in 2021, as loans go from forbearance status back to repayment, which is sure to have some delinquencies. However, the company is optimistic that 2021 will bring improvements in lending, with private loan originations expected to grow 20% on the year.
The company has committed to returning capital to its shareholders, as evidenced by the $523 million it spent on share repurchases and dividends in 2020. The company bought back 30.6 million shares, or 14% of its total shares, during the year. While there has been past criticism of some companies buying back stocks at high valuations, Navient's repurchase of stocks came when it was beaten down the most. The stock fell 28% in 2020, and the company saw its price-to-earnings (P/E) and price-to-tangible-book-value (P/TBV) ratios dip below 2.4 and 0.4, respectively, at one point, making the company cheaper than it had ever been.
While the company has clawed its way back and is up 35% in 2021, its stock still looks like a bargain, with a P/E around 6 and a P/TBV of 1.45 at Wednesday's close. This cheap valuation, improved lending conditions on student loans, and its $400 million commitment to share repurchases in 2021 all make Navient a solid value stock.
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Aflac
Life insurance is another industry that suffered from the pandemic. One well-run company that struggled was Aflac. A few factors affected the insurer, one being the cloudy employment situation. Unemployment hit nearly 15% during the year, with 23 million Americans unemployed at the peak in April 2020. Additionally, the company's heavy reliance on face-to-face interactions for selling its insurance products did it no good. As a result, Aflac saw a 30.8% decline in new sales in its U.S. division and another 36.2% decline in new sales in its Japan division.
Even with the decline in new sales volume, the life insurer saw revenue decline modestly, by only 0.7% on the year. This was due to premiums persistency, or the total amount of premiums still in force by the end of the period. So while new sales suffered, existing customers maintained coverage during the year, stabilizing premium revenues.
Aflac currently sports a P/E ratio of 7.5 and a P/TBV ratio of 1. The company projects that tough economic conditions will continue in the first half of the year, but management is optimistic about the second half of 2021 and beyond. That's because of the company's investments in a new medical product in Japan, its acquisition of Zurich North America's benefits business, and the rollout of vision and dental coverage.
With the stock beaten down, Aflac repurchased 37.9 million shares in 2020, or $1.5 billion worth. Just like Navient, Aflac bought back its stock on the cheap. Not only that, but the life insurer increased its dividend during the year, marking 38 years in a row of increasing dividends. The company is a Dividend Aristocrat -- an S&P 500 company that has increased its dividend for at least 25 consecutive years -- and yields 2.7%with a manageable payout ratio of 16%, making Aflac a solid stock to own for both value investors and dividend investors.
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Morgan Stanley
Morgan Stanley didn't face the same disruptions as Navient and Aflac, but it was still dragged down with the rest of the financial sector, and it found its stock down 45% at one point in 2020.
The company's heavily discounted stock price left CEO James Gorman scratching his head. That's because the company spent $13 billion acquiring E*Trade and another $7 billion on the acquisition of Eaton Vance, which will be finalized in the second quarter of 2021. These acquisitions help Morgan Stanley fill gaps and offer complementary services to clients through its trading platform as it looks to compete with rival Charles Schwab. These acquisitions also boost the company's total assets, with E*Trade boosting client assets by $3.5 trillion and Eaton Vance boosting AUM 20% to $1.2 trillion while projected to bring in an additional $5 billion in revenues annually.
The company reported solid earnings in 2020, growing 16% year over year to $48.1 billion on the year. Income was also up 21% on the year to $11.2 billion. The stock is trading at a P/E ratio of 12.3 and a P/TBV ratio just under 2. Although the stock is more expensive than it was back in November, it's still trading at a relatively cheap valuation compared to its primary competitor, Charles Schwab, which is trading at a P/E of 30.3 and P/TBV of 4.6. Morgan Stanley's stellar earnings performance coupled with key acquisitions and cheap valuation make this a solid stock to have in your portfolio for the long haul.
