1 Insurance Stock for Long-Term Investors and 2 We Find Risky

Insurance providers use their expertise in risk assessment to help protect assets while offering consumers peace of mind through comprehensive coverage options. Still, investors are uneasy as insurers face challenges from catastrophic events and potential regulatory changes. These doubts have certainly contributed to insurance stocks’ recent underperformance – over the past six months, the industry’s 6.1% gain has fallen behind the S&P 500’s 29.3% rise.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Taking that into account, here is one insurance stock poised to generate sustainable market-beating returns and two we’re passing on.

Market Cap: $14.2 billion

Tracing its roots back to 1859 as one of America’s oldest financial institutions, Equitable Holdings (NYSE:EQH) provides retirement planning, asset management, and life insurance products through its two main franchises, Equitable and AllianceBernstein.

Why Do We Think Twice About EQH?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 2.2% over the last five years was below our standards for the insurance sector

2. Annual book value per share declines of 137% for the past five years show its capital management struggled during this cycle

3. Debt-to-equity ratio of 2.4× is concerningly high, indicating excessive leverage that could limit financial flexibility

Equitable Holdings is trading at $47.41 per share, or 6.5x forward P/E. If you’re considering EQH for your portfolio, see our FREE research report to learn more.

Market Cap: $42.86 billion

With roots dating back to 1919 when it began as a small insurance agency in Shanghai, China, AIG (NYSE:AIG) is a global insurance organization that provides commercial and personal insurance solutions to businesses and individuals across more than 200 countries.

Why Do We Avoid AIG?

1. Insurance policy sales contracted this cycle as net premiums earned decreased by 6.6% annually over the last five years

2. Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 1% annually

3. Flat book value per share over the last five years suggest it must find different ways to enhance shareholder value during this cycle

At $77.30 per share, AIG trades at 1x forward P/B. Dive into our free research report to see why there are better opportunities than AIG.

Market Cap: $3.07 billion

Founded in 2013 to fill gaps in catastrophe insurance markets, Palomar Holdings (NASDAQ:PLMR) is a specialty insurance provider that offers property and casualty insurance products in underserved markets, with a focus on earthquake coverage.

Why Are We Backing PLMR?

1. Strong 38.3% annualized net premiums earned expansion over the last two years shows it’s capturing market share this cycle

2. Annual book value per share growth of 37.7% over the past two years was outstanding, reflecting strong capital accumulation this cycle

3. Expected book value per share growth of 24.6% for the next year suggests its capital position will strengthen considerably

Palomar Holdings’s stock price of $114.47 implies a valuation ratio of 3.3x forward P/B. Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.

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