Out Fox The $treet

Even after substantial gains this year, a whole slew of financial stocks still trade below book value. As written about back in January, a good portion of the insurance stocks traded close to half of book value. While the fears from the financial crisis have mostly dissipated, the stocks continue to meander below book value even with strong earnings profiles. Investors continue to fear that either the balance sheet isn more » Disclosure: Long HIG and LNC. Please review the disclaimer page for more details. 

After the close today, Hartford Financial (HIG) reported earnings basically in line with expectations following the tornado disasters in the US during Q2. More importantly though, HIG announced plans for a $500M share buyback equalling 5% of their current market cap of $10B. This always begs the question of why the stocks of insurers such as HIG and Lincoln National (LNC) remain so weak. Both stocks are solid position in our portfolios since they have consistently strong earnings and trade below book value. HIG trades at a PE of sub 6. Sure they are a financial, but they don't face the regulatory issues as banks. Based on a quick estimate, the book value per share for HIG would rise by $2 to $45.26 if the complete buyback were completed around the current price of $22.50. Naturally HIG is likely to rebound higher before it gets the opportunity to complete this buyback, but if not 22M shares will be removed from the market. Another nugget is that the BV will jump to $50 with e...