Back on February 28, I wrote about The Most Undervalued Stock Sector Today – life insurance stocks. After giving investors the names of these hot bargains, I reminded you that we were in the midst of a stock market correction and advised, “You can wait a few weeks” before buying. I wanted the market to have a chance to stop falling, so that you could buy low and catch their rebounds.
Here’s a performance history, going by March 13 prices—exactly two weeks after I advised waiting a few weeks before buying.
Life Insurance Stocks on the Rise
Ameriprise Financial (AMP): +32.2% since March 13
Athene (ATH): 23.4%
Brighthouse Financial (BHF): 32.6%
As you can see, these life insurance stocks have all delivered attractive three-month capital gains, and some of them also added dividend payouts to investors’ total returns.
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Let’s revisit this investment theme, because there’s still lots of room for these stocks to perform. All year, I’ve promoted investment management, life insurance and annuity companies because their valuations have been low enough to thrill value investors while their projected earnings growth rates have been exciting enough to entice growth stock investors. For the most part, these companies still offer low price/earnings (P/E) ratios and strong consensus earnings per share (EPS) growth.
My original article, back in February, cited great opportunities with Ameriprise Financial (AMP), Athene (ATH) and Brighthouse Financial (BHF). But there were more great stocks from their industry group on my buy list, which is why I had written, “And those are just the first three excellent financial stocks as I go down my list alphabetically.” Two additional industry peers include Equitable Holdings (EQH) and Voya Financial (VOYA), both of which have been featured in my weekly publication of value-oriented growth stocks, Cabot Undervalued Stocks Advisor.
3 Reasons Life Insurance Stocks are Rising
Now that we’re half a year into the COVID-19 virus pandemic, certain themes are emerging that continue to support the successes at investment management, life insurance and annuity companies. First of all, money is changing hands. At least 40 million Americans were laid off from their jobs. A significant percentage of those workers won’t have jobs to return to, so they’ll be receiving retirement plan distributions that they’ll be investing into Individual Retirement Accounts (IRAs). That’s a lot of new investment money that will be coming into investments and annuities!
Lots of Ameriprise Financial’s clients are bringing new money to the firm, which increases both the company’s assets under management and profits. All of Ameriprise’s peers are similarly receiving an influx of new investable assets.
Second, saving rates are through the roof, higher than they’ve ever been. Americans saved 33% of their disposable income in May! Basically, people are not spending money because they’ve lost access to the normal shopping and services that they typically spent money on: restaurants, salons, dry cleaners and malls. They’re also being voluntarily cautious with their spending, because we don’t yet know when life and commerce in the U.S. will return to normal. Much of those savings are being funneled into investments and annuities.
Third, Imperial College London originally predicted that U.S. virus pandemic death rates would total about 2.2 million. Actual deaths have been just 5.5% of that monstrous number, at about 120,000. That’s important to current capital gain opportunities in life insurance stocks because the very depressed share prices recently reflected the potential for huge death tolls that would have led to massive life insurance payouts. Now that we know that those horrendous death tolls will not likely materialize, the pressure is off life insurance stocks. Therefore, Athene and their peers will likely retain their attractive profits, rather than watching excessive amounts of money flow from their coffers to bereaved families in 2020.
There are always riskier and more glamorous places to invest, as opposed to boring old life insurance companies. But when strong “glamour stock” profits are potentially available through a highly undervalued corner of the stock market, take advantage of the opportunities. Sometimes an investment theme really is as simple as it sounds.
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