Time to Get Personal With Insurers
This column was originally published on RealMoney on March 27 at 3:34 p.m. EST. It's being republished as a bonus for TheStreet.com readers.
I favor financial companies with strong balance sheets and high business quality. Over a full market cycle, they will usually outperform the average lower-quality company.
There is an exception, though: When credit spreads are abnormally high (as from October 2002 to January 2004), and the credit cycle turns, it pays to buy low-quality companies that have survived the crisis. This would be one of the few times I would be tempted to lever up and buy all the momentum I can.
Simple screening techniques aren't generally applicable to financials, for the reasons that I outlined last week in
Graphing price-to-book vs. ROE for the companies in the personal lines sector gives a sense of relative valuations
|Source: David Merkel|
|Personal Property and Casualty Insurers
|Symbol||Name||Market Cap||P/E||P/E (next year)||Est. ROE||P/B||Est. P/B||Possible Gain/Loss|
|HMN||Horace Mann Educator||795.7M||11.10||10.84||13||1.36||1.55||14|
|IPCC||Infinity Property and Casualty||871.5M||8.21||12.73||11||1.38||1.48||7|
|STFC||State Auto Financial||1.372B||10.91||10.32||17||1.77||1.84||4|
|TW||21st Century Insurance||1.376B||15.79||16.04||10||1.66||1.53||-8|
|Source: David Merkel|
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