Zacks Investment Research


We’ve found ourselves in a highly unique economic environment following a once-in-a-lifetime pandemic.

The Fed’s pivot to a hawkish nature paired with geopolitical uncertainties has brought the bears out of hibernation, pushing bulls out of the arena.

However, financial service companies, such as insurance firms, can see their profit margins expand in higher interest rate environments.

Four stocks from the Zacks Finance sector – Aflac AFL, Cigna Corp. CI, Unum Group UNM, and Berkshire Hathaway B (BRK.B) – could all be considerations for investors. Below is a chart illustrating the share performance of all four YTD with the S&P 500 blended in as a benchmark.

Image Source: Zacks Investment Research

Let’s take a deeper dive into each one.

Unum Group

Unum Group provides disability insurance, long-term care insurance, life insurance, and employee-paid group benefits and related services.

Analysts have had a bullish stance on the company’s earnings outlook over the last several months, pushing the stock into a favorable Zacks Rank #2 (Buy).

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Image Source: Zacks Investment Research

Further, the company rewards its shareholders handsomely; UNM’s annual dividend yields a rock-solid 3.2% paired with a sizable 6.3% five-year annualized dividend growth rate.

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Image Source: Zacks Investment Research

UNM shares appear to be more than reasonably priced; the company’s 6.7X forward earnings multiple is just a few ticks above its five-year median, representing a sizable 49% discount relative to its Zacks Sector.

The company sports a Style Score of an A for Value.

Zacks Investment Research
Image Source: Zacks Investment Research

Aflac

Aflac is a titan in the insurance realm, holding the ranks as the largest provider of supplemental insurance in the United States.

Aflac has displayed an incredible commitment to its shareholders, carrying the elite title of a Dividend Aristocrat through 39 consecutive years of increased dividend payouts.

The company’s annual dividend yields a sector-beating 2.7% paired with a stellar 10.8% five-year annualized dividend growth rate.

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Image Source: Zacks Investment Research

Aflac’s current valuation levels are solid, further bolstered by its Style Score of a B for Value. The company’s 10.8X forward P/E ratio is nicely below its 11.2X five-year median, reflecting an 18% discount relative to its Zacks sector.

Zacks Investment Research
Image Source: Zacks Investment Research

Cigna

Cigna is a global health services company that delivers choice, predictability, affordability, and access to quality care through integrated capabilities and connected, personalized solutions. CI sports a Zacks Rank #2 (Buy).

Cigna rewards its shareholders via its annual dividend yielding 1.5%. At first glance, that’s considerably lower than its Zacks sector average of 2.6%.

However, the company’s triple-digit 260% five-year annualized dividend growth rate picks up the slack immensely.

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Image Source: Zacks Investment Research

Further, the company has a favorable growth profile; earnings are forecasted to soar 12.3% in FY22 and a further double-digit 10.3% in FY23.

The projected earnings increases come on top of forecasted revenue growth of 3.6% and 4.9% for FY22 and FY23, respectively.

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Image Source: Zacks Investment Research

Berkshire Hathaway B

Berkshire Hathaway is a diversified holding company, owning subsidiaries in insurance, railroads, utilities, manufacturing services, retail, and home building.

Analysts have upped their current and next fiscal year earnings outlook over the last several months, helping land the stock into a favorable Zacks Rank #1 (Strong Buy).

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Image Source: Zacks Investment Research

Shares are cheap relative to where they’ve resided in the past; shares trade at an 18.9X forward earnings multiple, nowhere near the 22.4X five-year median and highs of 27.2X in 2021.

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Image Source: Zacks Investment Research

Further, BRK.B has consistently exceeded quarterly estimates, exceeding the Zacks Consensus EPS Estimate in three of its last four earnings releases, with the average surprise being a double-digit 17.6%.

Bottom Line

In 2022, stocks have plummeted due to a complex economic environment. With inflation at historic highs, the Fed was forced to adopt a hawkish stance, raising borrowing rates.

During times of high-interest rate environments, financial stocks, such as insurance providers, can see their profit margins expand.

Aflac AFL, Cigna CI, Unum Group UNM, and Berkshire Hathaway B (BRK.B) could all be considerations for investors in fighting back against a hawkish Fed.

5 Stocks Set to Double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.

Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.Today, See These 5 Potential Home Runs >>

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Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report
 
Aflac Incorporated (AFL): Free Stock Analysis Report
 
Cigna Corporation (CI): Free Stock Analysis Report
 
Unum Group (UNM): Free Stock Analysis Report
 
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Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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