Insurance companies serve as the backbone of risk management, providing essential protection and financial security for individuals and businesses. But concerns about claims severity and tightening regulations have tempered enthusiasm, and over the past six months, the industry has pulled back by 2.4%. This drop is a noticeable divergence from the S&P 500’s 7.8% return.
Investors should tread carefully as many of these insurers are also cyclical, and any misstep can have you catching a falling knife. Keeping that in mind, here are three insurance stocks best left ignored.
Selective Insurance Group (SIGI)
Market Cap: $5.50 billion
Founded in 1926 during the early days of automobile insurance, Selective Insurance Group (NASDAQ: SIGI) is a property and casualty insurance company that sells commercial, personal, and excess and surplus lines insurance products through independent agents.
Why Does SIGI Give Us Pause?
- Estimated sales growth of 1.7% for the next 12 months implies demand will slow from its two-year trend
- Efficiency has decreased over the last five years as its pre-tax profit margin fell by 3.2 percentage points
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 12.6% annually
Selective Insurance Group is trading at $94.43 per share, or 1.5x forward P/B. If you’re considering SIGI for your portfolio, see our FREE research report to learn more.
Radian Group (RDN)
Market Cap: $4.54 billion
Founded during the housing boom of 1977 and weathering multiple real estate cycles since, Radian Group (NYSE: RDN) provides mortgage insurance and real estate services, helping lenders manage risk and homebuyers achieve affordable homeownership.
Why Does RDN Fall Short?
- Sales stagnated over the last five years and signal the need for new growth strategies
- Insurance offerings faced market headwinds this cycle, reflected in stagnant net premiums earned over the last five years
- Earnings growth underperformed the sector average over the last two years as its EPS grew by just 6.2% annually
Radian Group’s stock price of $35.60 implies a valuation ratio of 0.9x forward P/B. To fully understand why you should be careful with RDN, check out our full research report (it’s free).
First American Financial (FAF)
Market Cap: $6.61 billion
Tracing its roots back to 1889 when California was experiencing its first major real estate boom, First American Financial (NYSE: FAF) provides title insurance, settlement services, and risk solutions for residential and commercial real estate transactions across the United States and internationally.
Why Are We Hesitant About FAF?
- Net premiums earned remained stagnant over the last five years, indicating expansion challenges this cycle
- Earnings per share lagged its peers over the last five years as they only grew by 1.4% annually
- 3.6% annual book value per share growth over the last five years was slower than its insurance peers
At $69.47 per share, First American Financial trades at 1.2x forward P/B. Read our free research report to see why you should think twice about including FAF in your portfolio.
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