Stock of the Week
NYSE Symbol: HIG
Price as of 11/5: $26.42
Up, up, and away this week as the major averages broke through the yearly highs made back in April. The commodity and tech stocks continue to shoot higher. Even the financials perked up this week. Everything seems to be working. The financials rallied on Thursday when the Fed announced the well capitalized banks will be allowed to raise their dividends once again. JP Morgan, Wells Fargo, US Bancorp, and PNC Bank all jumped significantly on that news, however, all the financials have performed well of late including the insurance stocks. This week we'll feature an insurance stock that reported solid earnings on Tuesday. The stock of the week is Hartford Financial. Hartford's stock jumped 11% this week, but thanks to raised guidance, the long term fundamentals still make it a compelling investment. Hartford and the rest of the financials should also become nice dividend paying stocks once again in the coming years making them attractive ideas for income investors.
As mentioned, Hartford Financial reported third-quarter net income of $666 million or $1.34 per share on Tuesday. The earnings surpassed consensus estimates of 97 cents a share. Last year the company reported a quarterly loss. The improved showing was attributable to solid execution, including disciplined underwriting performance, and improved investment results. The upside was also attributable to strong growth in assets under management and an impressive improvement in the book value. The book value jumped 11% to $45.80 a share or nearly double the current stock price. Thanks to the strong showing in the third quarter, Hartford raised guidance for the rest of the year. The Chief Executive Officer Liam McGee , hired in October 2009, has returned Hartford to profitability as stock and bond rallies boosted the value of holdings and reduced liabilities to customers on equity-linked retirement products.
Many of the insurance stocks and financials still trade at or below book value making them attractive investments long term. Besides trading for 50% of book value, Hartford also trades for 11 times 2010 earnings, 7 times next years' earnings, and 1.1 times sales. Hartford recently received an upgrade at Barclays Capital with a price target of $32 a share based on a survey of top-producing life insurance salespeople interested in doing business with Hartford once again. Money manager, John Paulson who made billions on the housing crisis upped his stake in Hartford last quarter. Hartford has also been attributed to takeover chatter from rival, Allianz. No investor should ever buy a stock on takeover rumors. But the improving fundamentals and attractive valuation make Hartford a nice long term investment.