It's been a volatile year for investors. Over the last 12 months, the S&P 500 has risen as much as 17% and is currently down about 5.4%. Since hitting all-time highs in early January, the index is down about 19.3%.
Growth stocks especially have taken a big hit, with the Vanguard Growth ETF down 12.4% over one year. Value stocks have held up better, with the Vanguard Value ETF down about 2.1% over the same time frame.
Value stocks tend to be slower-growing companies with steady cash flows and can hold up better as the Federal Reserve raises interest rates to get inflation under control. When valuing stocks using the discounted cash flow method, growth stocks are more negatively impacted by rising interest rates than their value counterparts.
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Three value stocks that could keep moving higher while the market moves lower are Unum Group (UNM 0.35%), Assurant (AIZ 0.42%), and Travelers Companies (TRV -0.41%).
1. Unum Group: Up 12.3% over one year
Unum Group is an insurance company that manages employee benefits like dental, vision, and life insurance. The company felt some pressure in 2020 in the early days of the pandemic. Unemployment rates skyrocketed, reaching 14% in the U.S. at one point. This reduction in the workforce, coupled with higher claims payments on life insurance policies, was a drag on the business over the last couple of years.
However, the overall situation has improved for the insurer. Unum saw premiums increase 1% from last year in the first quarter. However, fewer claims payments resulted in strong bottom-line performance as adjusted operating income grew 31% last year.
Unum expects premium growth to remain solid and claims relating to COVID-19 to lessen going forward. For this reason, Unum raised its guidance on adjusted operating income per share from a range of 4% to 7% to a range of 15% to 20% for 2022.
Unum has a strong balance sheet with $1.3 billion in cash and liquid assets and has its lowest leverage ratio since 2014. This strong cash position is excellent for investors. The company should have no problem maintaining its dividend, which yields 3.5% while spending another $200 million annually buying back its stock. The stock is cheap, with a price-to-earnings ratio (P/E) of 7.6.
2. Assurant: Up 13.4% over one year
Assurant is another insurance company with a very niche focus. The company offers insurance on things across the connected economy. The specialty type of insurance covers extended warranties on items like phones, appliances, and vehicle protection.
Since 2017, Assurant has grown net earned premiums to $8.6 billion, or an 18% compound annual growth rate. Assurant has a couple of tailwinds to its business, including the rising costs of cellphones and the importance of the connected economy in our day-to-day lives.
The company protects 63 million devices but is currently chasing a global protection market of 300 million devices. It also sells vehicle service contracts. With car prices rising rapidly in recent years, Assurant sees people driving their cars longer and needing extended warranties to protect them from increasing auto parts prices. The company currently covers 54 million vehicles but eyes the global market of 400 million vehicles needing service contracts.
Going forward, Assurant expected adjusted earnings per share to grow 16% to 20% this year and around 12% in both 2023 and 2024. Assurant currently sports a P/E ratio of 7.8 and a dividend yield of 1.5%.
3. Travelers Companies: Up 6.7% over one year
Travelers is another insurance company, but with a focus on property and casualty insurance. The company provides a range of coverage, including auto insurance, workers' compensation, and property insurance.
The last year has been favorable for insurers like Travelers because of their pricing power. Insurance is always in demand, which is why it can perform well even during inflationary times.
Last year, Travelers grew its premiums by 6.2% to nearly $31 billion. Its bottom-line growth was even more impressive, with diluted earnings per share (EPS) up 38% from the year before. Growth in the first quarter remained solid, as the company grew premiums by 8.5%, and diluted EPS was up 45%.
The combined ratio is one measure insurers use to measure how well they are underwriting. This is simply a ratio of the claims costs plus expenses to the earned premiums. A ratio below 100% is desirable, and the lower the ratio, the better. In 2021, Travelers' combined ratio was a solid 94.5% -- which improved to 91.3% in the first quarter.
Insurance companies can be great stocks to own because of their cash-generating ability -- which can also make them solid dividend stocks. Travelers is one, having increased its dividend for 17 years consecutively with a solid 2.1% yield, and it has a cheap P/E ratio of 10.6.
