Many economists are predicting
continued high inflation, which translates to rising interest rates,
for at least the next few months.
Although considered bad for
the overall market, insurance stocks are an exception. Why?
Insurance companies are
required to invest excess cash in U.S. Government or
investment-quality-rated bonds, so that
they’ll have funds readily available to pay claims. In fact,
insurance company earnings come mostly from the interest generated
by those bond holdings, not from the premiums collected for writing
policies.
Thus, when interest rates move
up, so do insurance company earnings. It’s as simple as that.
So, I’m going to describe a
stock screen that you could use to pinpoint value-priced
high-dividend-paying insurance company stocks that are in favor with
wired-in institutional investors as well as stock analysts.
As usual, I’ll use the free
and user-friendly Finviz stock screener to
demonstrate the process, but you could one of the many other
web-screeners to do the job.
Set Up Screener
Find the screener by selecting
the Screener option on the Finviz homepage
(finviz.com). You
control the Finviz screener using
“filters” to search for stocks meeting you selection criteria.
Select “All” on the Filters bar to see the available filters.
Start by using the “Country”
filter and selecting “USA” to limit you list to U.S.-based stocks.
For reasons that will become obvious later, we’ll wait until the end
to specify “insurance industry” stocks.
Valuation
For insurance companies, book
value, primarily the value of their bond holdings, is the best
valuation measure. So, use the use the price/book filter (labeled
P/B) and specify “under 1” to limit your
list to relatively value-priced stocks.
Dividends
Most insurance companies pay
significant dividends. Use the “Dividend
Yield” filter to specify “Over 3%.” Later,
you can adjust that value down if you want to see
a longer candidates list.
Investor Sentiment
Use the “Institutional
Ownership” filter and specify “Over 50%” to limit your list to
stocks in-favor with the wired-in big money players.
Then, rather than analyzing
financial statements, specify “Buy or Better” using the “Analyst
Recommendations” filter to limit your list to stocks that analysts,
who spend their days doing that, are advising buying.
Specify Insurance
Categories
Rather than single category
for all insurance companies, Finviz lists
six different insurance industry categories. Those pertinent to us
include: Diversified, Life, Property & Casualty, and Specialty.
Thus, you must specify each of those four
categories separately to see all of the passing stocks.
Candidates
My screen turned up three
candidates, two in the Property
& Casualty field and one Specialty insurer.
•
Heritage
Insurance Holdings (HRTG): Property & Casualty,
3.3% dividend yield.
•
Kingstone
Companies (KINS): Property
& Casualty, 3.1% yield.
•
Radian Group (RDN):
Mortgage Insurance,
3.5% yield.
Consider the stocks listed by this screen, or any
screen for that matter, as research candidates, not a buy list. The
more you know about your stocks, the better your results.
published
3/29/22
