At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Here, we'll show you whether those bigwigs actually know what they're talking about. With help from Motley Fool CAPS, we track the long-term performance of Wall Street's best and worst.
And speaking of the best ...
What do you do when one of the best investors in the business takes a look at one of the most boring sectors of industry, and actually gets excited? Personally, I'm a fan of boring stocks, so when Barclays Capital announced Monday that it sees huge value in the life insurance industry, I paid attention.
According to StreetInsider.com, Barclays dove into the muddy insurance waters headfirst, initiating coverage of eight separate big-name insurers. After crunching the numbers, the banker pronounced Lincoln National, Principal Financial, Hartford
So some banker over in London Town says U.S. insurers are cheap. What do they know? Possibly, quite a lot. According to our CAPS stats, Barclays Capital is one of the very best stock pickers around, getting roughly 57% of its stock picks right, and outperforming nearly 98% of the investors we track on CAPS.
So it's worth taking note when it points out that insurance stock "valuations ... are currently below historical average levels based on forward P/E as well as price-to-book ... and also appear attractively valued compared to the P&C [property and casualty] insurance stocks."
Mind you, no one's perfect, and even Barclays has made its share of mistakes. Fact is, if you dig deep into the company's record (as we're able to do -- and you can, too! -- on CAPS), you may be surprised to learn that in spite of its superb record overall, Barclays has historically underperformed the market on the majority of its insurance industry picks. Still, when I crunch the numbers, I tend to agree with Barclays on most of its favorites in the industry. While Ameriprise looks expensive to me, MetLife, Prudential, and Aflac do look attractive.
MetLife, for example, sells for 14.5 times earnings today, is expected to grow its earnings at 13.3% annually over the next five years, and pays a 1.7% dividend to its shareholders. Barclays points out that MetLife's purchase of Alico from AIG
The price tag at Aflac is even more tempting. At just 10.4 times earnings, it's one of the cheapest insurance stocks out there based on an identical 13.3% long-term growth assumption. Even better, Aflac offers a superior 2.3% dividend payout, making it arguably an even better buy than MetLife. (For the record, I also like Prudential at 10.4 times earnings. It's just that with a slower growth rate and stingier dividend payout, it doesn't seem to offer as compelling a bargain as does Aflac.)
I admit that investing in insurance stocks lacks a certain "sex appeal." I doubt, for example, that these kinds of ho-hum investing ideas will appeal to your run-of-the-mill Apple investor. Still, a bargain's a bargain -- and Barclays has proved itself a great finder of bargains, time and again. In adding MetLife and Aflac to its buy list, I think it's done it again.
Apple is a Motley Fool Stock Advisor recommendation. Motley Fool Options has recommended a bull call spread position on Apple. The Fool owns shares of Apple. Aflac is a Motley Fool Stock Advisor recommendation, and The Fool owns shares of Aflac, but Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 542 out of more than 170,000 members. The Motley Fool has a disclosure policy.
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