Dealmaker’s Diary: “Insure” Your Portfolio With This 8% Yielder

Alpesh Patel|May 9, 2024

Many investors are looking for growth plays in the tech sector.

It’s not surprising… given the gains we’ve seen there.

But I’m looking at one sector that has remained undervalued in this bull market.

And I’ve found a $12 billion company that has plenty of growth on the horizon.

The stock scores a 9 on my proprietary Growth-Value-Income rating system – the same algorithm I use for my hedge fund clients (that you get access to for free!)…

It’s undervalued by about 50%… and the stock has very low volatility in this market.

Plus, it pays a huge 8% dividend.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to check it out.

TRANSCRIPT

Hi, friends. Welcome to another Stock of the Week.

As you know, I try to mix it up to make sure that I can both inform and educate you at the same time in terms of what’s going on in the world.

We’re looking at a finance company. Why? Well, because the financial sector continues to look undervalued.

It doesn’t mean that all undervalued companies will rise, and it doesn’t mean valuation is the only factor that we should look at. But when we find something which is undervalued and the other boxes are largely ticked, it really piques our interest.

So CNA Financial (CNA), an insurance holding company, works in commercial property and casualty insurance. You’ve probably seen the logo around and never really thought about the company.

Well, it’s a $12 billion company that’s forecast to grow sales – which is important – and forecast to grow profits. And it also pays dividends.

Let’s look at some of those numbers in a bit more detail.

On my Growth-Value-Income rating, my proprietary algorithm which looks at the valuation of a company, its growth, revenue growth, profit growth, dividend yields, and all those factors… and then weighs value more than growth, more than income… we come to a score of 9. Anything with a 7, 8, 9 or 10 passes my test.

There are three ways to look at the forecast price/earnings,. Of course, what it means is you’re paying 8.8 dollars for every future dollar in profits the company generates.

Now with the three ways to look at it, in absolute terms, is that cheap?

Well, for companies generally, yes. What about companies in the sector? Generally in finance, yes.

Is it historically cheap? Is it cheap compared to what it’s done itself in the past?

This company and its P/E, not the cheapest it’s been, but certainly not expensive by its own historical measures. And then relative to other companies, is it cheap both in its own sector and more broadly in the stock market?

And the answer is once again yes.

Cash return on capital invested is a little bit low. I would have loved to have seen that higher. When I pick stocks for GVI Investor, I’m looking for a bigger number. You can learn more about CROCI, invented by Deutsche Bank and used by Goldman Sachs Wealth Management, right here.

But 3.5%, fine. Not fantastic, but fine.

Sortino is the average return versus the risk. Now, this is lower than I would want for GVI Investor, but for a Stock of the Week, it’s okay.

Volatility is 6.2%, very low. Good. I like low volatility.

Turning to the graph, what we’d really be looking at is for the stock to resume the upward momentum that it had since July 2023 – it’s gone sideways for a short while now – and head up again, closer to the $50s and $60 mark over the next 12 months.

That’s what we’d be looking at.

And the monthly momentum, while not rising at a high gradient, is sort of ticking along.

Now, the concern would be if it just went sideways, but given the valuations, and the other factors we talked about, I’m expecting that won’t be the case, and it should rather than go sideways start eking upward.

In terms of discount cash flow, it’s 47% undervalued. Discount cash flow is not, like any financial indicator, not guaranteeing the future, but it certainly helps us tick another box.

So quite a few things looking good for it.

You could argue in terms of the broader economy, in terms of insurance, in terms of the sector the company is in and the valuations, that we should generally get a pickup in any event.

So hope you like that. Hope it was, as I said, both educational as well as informative of some of the factors that I look at when things cross my desk.

Thank you.