AFLAC “Is One of the Cheapest Stocks in the S&P 500 Right Now”

Teresa Rivas at Barron’s make the case for AFLAC ($AFL):

The Aflac duck endures many misfortunes in the insurance company’s goofy advertisements, from scorched feet to a broken bill. Now the stock is taking a beating as well, following a drop in Japan’s currency, and this has created an opportunity for investors.

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“This is one of the cheapest stocks in the S&P 500 right now, especially among companies that are going to report earnings, not losses,” says Bill Smead, portfolio manager of the Smead Value Fund. “This is a premier financial services and insurance company—a storm doesn’t come in and turn a company upside down. If you look at the 2011 tsunami, even though 75% of Aflac’s revenue comes from Japan, [the disaster] didn’t really have any impact.”

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“It has low price-to-earnings and price-to-book [ratios], and yet the company is going to be turning in a fairly healthy return on equity in 2013, so there’s a disconnect between the price today and the returns the company is providing.”

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Still, the stock price doesn’t reflect Aflac’s long-term potential. Its premium brand name is an asset in Japan, where it has long enjoyed a stellar reputation, and, thanks to the duck, it is well known in the U.S.

“If you put 100 people in a room and give them the generic category of supplemental health insurance, I don’t think anyone would be able to say any name other than Aflac,” says Smead. “If savvy people can’t tell you who a company’s No. 2 competitor is, they’ve won the game before it starts.”

Posted by on March 1st, 2013 at 11:23 am


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