Potential Opportunities In Insurance Stocks/ETFs And Learning Company Stocks

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In 2022, the majority of stocks and stock ETFs that have outperformed their peer groups were classified as value, high income, or both. That may or may not continue into the future. Last week, a colleague who prefers investing in stocks to ETFs asked me if I knew any stocks that the ValuEngine model ranked as 5’s (Strong Buys) for price appreciation that also had dividend yields more than twice as high as the S&P 500 Index in addition to being classified as value stocks by our valuation model. This question inspired me to run a screen for today’s blog. In addition to these three criteria, I specified a market capitalization of greater than $1.0 Billion.  

Two US stocks that satisfied all four of these criteria. They are Lincoln National Corp., (LNC) and Laureate Education, Inc. (LAUR).

Lincoln National Corp (LNC) is a financial services company headquartered in Radnor, PA, marketed as Lincoln Financial Group. The Company offers diverse solutions including annuities, life, group life, disability and dental insurance, employer-sponsored retirement plans, savings plans, and comprehensive financial planning and advisory services.LNC distributes its products through consultants, brokers, planners, agents, financial advisors, third-party administrators, and other intermediaries. Lincoln National Corporation was founded in 1905 and is based in Radnor, Pennsylvania.

Laureate Education, Inc., (LAUR) together with its subsidiaries, provides higher education programs and services to students through a network of universities and higher education institutions. The company offers a range of undergraduate and graduate degree programs in the areas of business and management, medicine and health sciences, and engineering and information technology through campus-based, online, and hybrid programs. It provides its services in Mexico, Peru, and the United States. LAUR was formerly known as Sylvan Learning Systems, Inc. and changed its name to Laureate Education, Inc. in May 2004. It was originally founded in 1989 and is headquartered in Miami, Florida.

In order to provide context for an analytic breakdown with each company, I include the stock of one industry peer and one representative ETF that holds a significant percentage of each. In the Comparison with Peers section of the ValuEngine Rating and Forecast reports, each has exactly one peer among the four listed that the prediction model for price appreciation rates as a 4 (Buy).

For Lincoln National, it is Reinsurance Group of America, Inc. (RGA). Reinsurance Group of America, Inc. is one of the largest global life and health reinsurance companies. It is the only global reinsurance company to focus primarily on life- and health-related reinsurance solutions.

For Laureate Education, its closest buy-rated peer is 4-rated Stride, Inc. (LRN), a technology-based education service company, provides proprietary and third-party online curriculum, software systems, and educational services to facilitate individualized learning for students primarily in kindergarten through 12th grade (K-12) in the United States and internationally. Stride was founded in 2000 and its corporate headquarters are located in Reston, VA.

To determine the best ETFs to use in the analysis, I went to ETF.com which provides lists of ETFs that hold a given stock. The ETF most associated with LNC is the S&P SPDR Insurance ETF (KIE) which tracks an equal-weighted index of insurance companies. Making the comparison even more appropriate, KIE also holds RGA. For Laureate Education, its top associated ETF is the Invesco DWA Consumer Staples Momentum ETF (PSL). This ETF tracks an index of US consumer non-cyclical firms selected and weighted by price momentum derived from the Dorsey-Wright Technical Leaders Index.LRN is also included in PSL.

The first analysis spotlights Lincoln National Corporation. The table below analyzes and contrasts LNC with RGA and KIE, providing a feel on how Lincoln Financial stacks up among its peers. To provide additional context, the ValuEngine reports of RGA and KIE are used for most of the data in the analysis. The remaining data have been sourced from ETF.com and Yahoo Finance.

The table below provides summary info for both stocks and two ETFs, the second being VOO, the Vanguard S&P 500 ETF frequently used for benchmarking. All data are as of November 28, 2022. More comprehensive analysis can be found by pulling up the underlying ValuEngine reports.

 

LNC

RGA

KIE

VOO

Market Index Being Tracked

Lincoln National Corp.

Renaissance Group of America

S&P SPDR Insurance ETF

Vanguard S&P 500 ETF

ValuEngine Rating

5

4

4

3

VE Forecast 3-mo. Price Return

+1.95%

+1.86%

+2.31%

+1.92%

VE Forecast 6-Mo. Price Return

+1.08%

+1.29%

4.13%

+4.19%

VE Forecast 1-yr. Price Return

+17.01%

+4.69%

-0.16%

-0.83%

Last mo. Price Return

-26.30%

-0.17%

+7.70%

+4.54%

Last 3 mo. Price Return

-21.6%

+10.66%

+5.84%

-4.13%

Last 6 mo. Price Return

-28.99%

+18.02%

+8.56%

+1.26%

Historic 1-Yr. Price Return

-45.53%

+32.98%

+3.89%

-14.30%

Historic 5-Yr Ann. Price Return

-6.83%

-0.30%

+5.97%

+8.15%

Volatility

45.3%

33.1%

20.3%

18.6%

Sharpe Ratio

-0.15

-0.01

0.29

0.44

Beta

1.87

0.95

0.90

1.00

# of Stocks

1

1

50

500

Undervaluation Percentile

83

50

20*

25*

P/B Ratio

3.0

2.6

1.3

3.5

P/E Ratio

11.6

16.8

10.8

17.2

P/S Ratio

0.3

0.6

2.0

2.3

Div. Yield

4.6%

2.2%

1.7%

1.7%

Expense Ratio

N/A

N/A

0.35%

0.03%

* ETF Undervaluation # is the percentage of undervalued stocks, not a comparison with all other ETFs in our universe

Analysis 

  1. The table confirms why Lincoln National Corp. (LNC) came out at the top of the screen. Its expected 1-year return of 17% puts it in the 97th percentile of the ValuEngine universe. From a valuation model perspective, 83% of the 4000+ stocks in the ValuEngine universe are less undervalued than LNC. Using traditional metrics, its price-to-sales and price-to-earnings ratios are much lower than that of the S&P 500 and while its price-to-book ratio is higher than its insurance industry peers, it is also lower than the price-to-book ratio of the S&P 500. The icing on the cake for the case of considering LAUR for potential purchase is its generous dividend yield of 4.6%, about 2.5 times that of the benchmark index.
  1. Analyzing LNC relative to its peers, however, LNC has exhibited much higher price volatility and a huge Beta. Moreover, LNC’s dismal return history but high projected earnings growth means that quantitatively, our models indicate a major positive turnaround situation for Lincoln National, hence the high potential reward. Its high yield is representative of its large historical 12-month price decline relative to its industry.In comparison. 
  1. For those willing to settle for less spectacular but still robust projected outperformance and lower but above-average dividend yield, Renaissance Group (RGA) is an insurance company stock that provides a much more consistent alternative. It has outperformed its industry as represented by KIE and the S&P 500 as represented by VOO in 3-, 6- and 12-month price gains with far less volatility and a below-market Beta of 0.95.  Its traditional value ratios are higher than its industry peers but well below the market as a whole.ValuEngine’s 50th percentile means that our valuation model considers RGA fairly valued.
  1. Speaking of the S&P SPDR Insurance ETF (KIE), advisors that prefer ETFs for their clients may wish to consider it.KIE is rated 4 (Buy) by the ValuEngine model offers far superior recent performance to VOO with much better traditional valuation statistics and far superior recent performance amidst turbulent markers. It also provides an S&P alternative with a lower Beta. There is also the near elimination of idiosyncratic (single-stock-specific) risk that an investor bears with a single stock. One downside, KIE has an expense ratio of 0.35%, higher than most algorithmically driven index ETFs and more than 10 times that of VOO.

Laureate Education (LAUR) is the subject of the second peer group analysis of stocks with above-average dividend yields and rated by ValuEngine’s models as both Strong Buy and Undervalued. Once again, a 4-rated (Buy) stock with lower projected capital appreciation and an ETF containing both stocks are reviewed alongside benchmark ETF VOO.

 

LAUR

LRN

PSL

VOO

Market Index Being Tracked

Laureate Education Inc.

Stride Inc.

Invesco DWA Consumer

Staples Momentum ETF

Vanguard S&P 500 ETF

ValuEngine Rating

5

4

4

3

VE Forecast 3-mo. Price Return

+1.92%

+0.61%

+2.48%

+1.92%

VE Forecast 6-Mo. Price Return

 0.00%

-0.02%

+4.57%

+4.19%

VE Forecast 1-yr. Price Return

+15.56%

+10.86%

-0.16%

-0.83%

Last mo. Price Return

-16.11%

-23.3%

+8.00%

+4.54%

Last 3 mo. Price Return

-7.78%

-5.60%

+2.37%

-4.13%

Last 6 mo. Price Return

-20.32%

-10.03%

+8.56%

+1.26%

Historic 1-Yr. Price Return

-6.95%

+0.34%

+3.89%

-14.30%

Historic 5-Yr Ann. Price Return

-1.12%

+14.5%

+5.97%

+8.15%

Volatility

45.8%

48.0%

16.7%

18.6%

Sharpe Ratio

-0.02

+0.30

0.34

0.44

Beta

1.00

0.17

0.73

1.00

# of Stocks

1

1

40

500

Undervaluation Percentile

73

45

20*

25*

P/B Ratio

1.9

2.0

3.3

3.5

P/E Ratio

102.4

17.0

18.8

17.2

P/S Ratio

1.5

0.9

1.9

2.3

Div. Yield

6.6%

0.0%

1.3%

1.7%

Expense Ratio

N/A

N/A

0.60%

0.03%

* ETF Undervaluation # is the percentage of undervalued stocks, not a comparison with all other ETFs in our universe

Analysis 

  1. The table confirms why Laureate Education (LAUR) came out at the top of the screen. Its expected 1-year return of 15.6% puts it in the 96th percentile of the ValuEngine universe. From a valuation model perspective, 73% of the 4000+ stocks in the ValuEngine universe are less undervalued than LAUR. Using traditional metrics, its price-to-sales and price-to-book ratio ratios are much less than that of the S&P 500. The anomaly is the price-to-earnings ratio is extremely high due to charges that had to be taken earlier in the year. Another strong reason for considering LAUR for potential purchase is its whopping dividend yield of 6.6%, nearly 4 times that of the benchmark index.
  1. Analyzing LAUR relative to Stride, its closest peer that also has a Buy Rating (LRN), LAUR rates much more highly on all three of our initial screen’s criteria. Most obvious is the fact that LRN does not pay a dividend. Interestingly, LNC has more price volatility than LAUR but has a Beta below 0.25 meaning that its price movements are rarely influenced by market movements. This is a very rare characteristic for US stocks not involved in gold mining. Its low correlation with the market could be useful quantitatively to portfolio managers trying to minimize portfolio volatility. Historically, LRN’s five-year annualized price return of 14.5% ranks it higher than the vast majority of ETFs and stocks. Its one-year forecast rank places LRN in the 91st percentile in comparison with LAUR ranking in the 97th percentile so both have excellent price appreciation expectations. When the dividend portion of total return is counted in the equation, LAUR has much higher expected total return for the next 12 months.
  1. The 40-stock Invesco DWA Consumer Staples Momentum ETF (PSL) is rated a 4 (Buy) by ValuEngine’s prediction model and has exhibited far less price volatility than either LAUR or LRN. It is one of the best performing US equity ETFs historically for the past year and also is tops in this sample in historical 1-, 3- and 6-month performance. From a one-year projection perspective, PSL is in the 81st percentile of all ETFs covered by ValuEngine.It also has the highest projection in this sample for the next 1-, 3- and 6 months. Its Beta of 0.73 indicates less sensitivity than most portfolios to market movements. Above-average resistance to market moves can be a very useful characteristic in extremely volatile markets such as the one we have experienced in 2022 thus far.  PSL is very close to S&P in the table’s valuation data. However, at 1.3%, its dividend yield is j lower than the 1.7% of VOO. Potential investors should also be aware that PSL’s expense ratio of 0.60% is among the highest of ETFs that exclusively hold US stocks and are managed electronically without active portfolio managers. 

In summary, all four stocks and both peer group ETFs are rated by ValuEngine’s predictive models to outperform during the next 12 months relative to the ValuEngine universe. This analytic framework is offered to investors to facilitate comparative analysis in meeting the objectives and constraints of end investors. Checking out LNC (5 rated, 4.4% yield) and learning more about 5 rated LAUR (6.6% dividend yield) may turn out to be keys to superior growth and income during the next 12 months.

More By This Author:

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Opportunities In Large Cap Growth And Small Cap

Disclaimer: Always read the fact sheets and/or summary prospectus before buying any ETF.  Do your own research. Past performance may not be indicative of future results.

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