MetLife Continues To Languish In An Out-Of-Favor Sector

Maybe the nicest thing I can say about MetLife (MET) is that it has suffered no worse than its sector, with the shares down 4% over the past year and more or less in line with Lincoln (LNC) and Prudential (PRU), while Unum (UNM) has fallen more than 20%. The issues for investors remain more or less the same – worries about spread pressure, worries about credit quality risk in fixed income, worries about the growth potential of mature markets, and probably most importantly, worries about the status of reserves in long-term care insurance books.

I continue to believe MetLife is undervalued, but it’s hard to identify a catalyst for a turnaround in sentiment. A successful/benign completion of its actuarial review of its LTC business would certainly help, but I think investors are firmly in the “we’ll believe it when we see it” camp when it comes to the potential of the LTC business, as well as the company’s cost-cutting targets and growth initiatives. I continue to see fair value in the low-to-mid $50s, which when combined with the dividend, suggests a pretty good return for this unpopular name.

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MetLife Continues To Languish In An Out-Of-Favor Sector

Seeking Alpha: Isn't Torchmark Supposed To Be Defensive?

Life and supplemental health insurance company Torchmark (TMK) is unusual in a lot of ways. Not only does the company have a pretty exceptional history of returns on equity, those returns have been remarkably consistent. The company's underwriting risk is low and not many companies can compete in its core life insurance markets. What's perhaps even stranger is that this supposedly defensive insurance stock is doing quite well in a market where conditions are seen as improving for the sector.

Even though Torchmark would normally have less to gain from the improving economy and rising rates, these shares may yet be undervalued. Torchmark's different model makes P/TBV valuation almost useless, but the shares look surprisingly cheap on the basis of an excess return model. I don't normally think to look at the 52-week high list for bargains, but Torchmark could still offer some meaningful upside from today's level.

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Isn't Torchmark Supposed To Be Defensive?

Investopedia: Can Torchmark Be What It Used To Be?

Investors have definitely warmed up to insurance companies in recent months, as a quick look at the charts of property and casualty insurers like Allstate (NYSE:ALL) and Progressive (NYSE:PGR) will show. The same is true for the life insurers, as stocks like Lincoln National (NYSE:LNC) and MetLife (NYSE:MET) (even with the disappointment tied to the Fed's stress test) have done reasonably well.

Where does that leave Torchmark (NYSE:TMK)? Torchmark is an odd insurance company, as it offers fairly simple products and focuses in part on a competitive cost structure. While the stock is up nearly 50% over early October lows, current analyst targets seem to suggest that the future will not be nearly as strong as the past. If Torchmark can reclaim past returns on equity (ROE), though, the returns could be still be significant.

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