Send me real-time posts from this site at my email

Don't Wait for a Market Crash to Buy This Value Stock

The stock market has gotten off to a jittery start in 2022. Investors seem to be on edge as inflationary pressures squeeze the economy. The consumer price index for December was up 7% year over year -- the largest increase in more than 40 years.

As a result, the Federal Reserve is making a significant pivot, signaling that it would be ending some of its pandemic-era emergency programs and raising interest rates three times in the upcoming year to combat inflationary effects in the economy.

But if you have a long-term outlook, periods of market anxiety often turn out to be buying opportunities. If you're looking for a great value stock that you can buy today, consider Aflac (NYSE: AFL).

The pandemic crushed insurers like Aflac

Aflac is an insurance company that provides life insurance and supplemental insurance products in the United States and Japan. This type of insurance is meant to supplement regular health insurance and includes dental coverage, critical illness, accident, and cancer insurance.

Supplemental and life insurance companies were hurt by the pandemic. When U.S. unemployment surged to 23 million, Aflac saw sales on its supplemental insurance take a hit. Sales in the United States and Japan were down 31% and 36%, respectively, in 2020.

Image source: Getty Images.

However, things are beginning to look up for the insurer. While premiums were down 4% through the first nine months of 2021, benefits payouts were down, too. Benefits payouts were down 9.4% compared to last year, and its earnings before taxes were up 39% to $4 billion through the first nine months.

Investment performance improved drastically, too. Insurers like Aflac make money on the premiums they collect from the different insurance policies they sell. However, they invest excess proceeds to generate investment income. Investment gains were $224 million through nine months of 2021, up from its $525 million in losses during the same period the year before.

Rising rates could be a good thing

In recent years, Aflac has diversified its investments to prepare for a scenario in which interest rates stay low. As a result, it has diversified investments by adding a stake in different investment managers. For example, it bought a stake in Varagon, a middle market loan manager, Sound Point Capital, a traditional real estate manager, and Denham Capital, a sustainable infrastructure manager.

However, the company would benefit from an environment of rising interest rates. For over a decade, the company has been impacted by low interest rate policies by the Federal Reserve and the Bank of Japan, impacting its investment income as a result.

The company doesn't want to see interest rates held low for too long. That's because new premiums put to work would generate lower yields. Lower yields for too long could impact investment income and would also impact its business. Rising rates would be a welcome sign for this insurer. If interest rates rose, Aflac could put new cash to work on investments that generate higher yields.

Image source: Getty Images.

Lifting of COVID-19 restrictions and new products will drive growth

Aflac management expects to benefit from the lifting of COVID restrictions. The company is heavily reliant on face-to-face sales, especially in Japan. The pandemic has been a challenge to this business, and management believes things will improve once restrictions are lifted.

It isn't just waiting for those restrictions to lift, though. The company is also expanding its product offerings. For example, in Japan, it has introduced cancer insurance to help pay for chemotherapy and other non-medical expenses, as well as a nursing care product to cater to Japan's aging population.

It has seen high demand for network dental and vision coverage in the U.S., and is working on expanding those sales. It has also introduced a product called Aflac Direct, and the goal is to target 127 million U.S. workers that don't currently have access to its group products through their employers.

The company expects to turn the corner and see growth accelerate in 2023. While it expects revenue in Japan to remain flat, it expects 3% to 5% compound annual growth through 2026 in the United States.

A cheap stock with an impressive dividend history

Aflac is a solid value stock trading at a price-to-earnings ratio of 10.2 at Thursday morning's prices, while its price-to-tangible-book-value of 1.24 puts it on the low end of its price over the past decade. The company also has displayed stellar capital management, which is why it's part of the exclusive Dividend Aristocrat club, raising its dividend for 39 years straight. With a cheap valuation and solid dividends, Aflac looks like a good buy even if the market sells off.

10 stocks we like better than Aflac
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

They just revealed what they believe are the ten best stocks for investors to buy right now... and Aflac wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of January 10, 2022

Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool recommends Aflac. The Motley Fool has a disclosure policy.


Source

Popular posts

Welcome! Is it your First time here?

What are you looking for? Select your points of interest to improve your first-time experience:

Apply & Continue