While ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself. With that in mind, this article will take a brief look at the best companies of the Insurance industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.
Out of the more than 560 companies reviewed by ModernGraham, 28 were identified as being closely related to the insurance industry. Of those, eight are suitable for the Defensive Investor, eleven are suitable for the Enterprising Investor, and the remaining nine are considered speculative at this time. Excluding any extreme outliers, the average company was rated as being priced at 82.34% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 16.52. The industry as a whole, therefore would appear to be fairly valued (within a margin of safety relative to the current price), particularly in comparison to the market (see Mr. Market's Mental State).
The Elite
The following companies have been rated as the most undervalued and suitable for either the Defensive Investor or the Enterprising Investor:
ACE Limited (ACE)
Ace Limited qualifies for both the Defensive Investor and the Enterprising Investor. The company passes all of the requirements of both investor types, an accomplishment indicative of the company's strong financial position. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with the next stage of the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $6.42 in 2011 to an estimated $8.84 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 1.96% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
AFLAC Incorporated (AFL)
Aflac Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company's strong fundamentals. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with the next stage of the analysis.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.92 in 2011 to an estimated $6.07 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 0.51% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
Allstate Corp (ALL)
Allstate passes the initial requirements of the Enterprising Investor but not the Defensive Investor. In fact, the company passes every requirement of the Enterprising Investor types, but the Defensive Investor is concerned by the lack of earnings stability and insufficient earnings growth over the last ten years. As a result, all Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company's intrinsic value.
When it comes to that valuation, it is critical to consider the company's earnings history. In this case, it has grown its EPSmg (normalized earnings) from $1.38 in 2011 to an estimated $4.97 for 2015. This is a fairly strong level of demonstrated growth, and outpaces the market's implied estimate for annual earnings growth of only 2.69% over the next 7-10 years.
In recent years, the company's actual growth in EPSmg has averaged around 52% annually, and while the ModernGraham valuation model reduces the actual growth to a more conservative figure when making an estimate, the model still returns an estimate of intrinsic value well above the current price, indicating that Allstate is significantly undervalued at the present time. (See the full valuation)
American Financial Group Inc (AFG)
American Financial Group Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The company passes all of the initial requirements of both investor types, an indication that the company has a very strong financial position. As a result, all value investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with the evaluation.
As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.58 in 2011 to an estimated $5.01 for 2015. This level of demonstrated earnings growth outpaces the market's implied estimate of 2.82% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham's formula, returns an estimate of intrinsic value above the price. (See the full valuation)
American International Group Inc (AIG)
American International Group Inc. qualifies for the Enterprising Investor but not the Defensive Investor. The Defensive Investor is concerned by the insufficient earnings growth or stability over the last ten years, and the inconsistent dividend record, while the company passes all of the Enterprising Investor's requirements. As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham's methods should feel comfortable proceeding with further research into the company and comparing it to other opportunities.
