Progressive (NYSE:PGR) is one of the top three vehicle insurers in the U.S. And it has been a strong player in the market since its start in 1965. There are two attractive facets to PGR stock at this point. One is a broader trend that helps the entire industry, but helps the smartest players the most. The second is more specific to PGR relative to its competitors.
The broad trend that is bullish for insurance companies in general is the fact that we’re in a rising interest rate environment. You see, insurance companies collect premiums for their policies. But instead of keeping all that cash lying around, they put it to work. They have massive investment portfolios.
But a good percentage of that money has to be available in cash or cash equivalents (U.S. Treasury Bonds and Notes) in case they need to access those monies quickly to pay out claims for say, a hurricane or other natural disaster.
The rest of the cash can be deployed into less liquid investments like stocks or corporate bonds.
How Will PGR Stock Look Going Forward
Given the fact that U.S. rates have been rising, and are more likely to rise than fall, that means insurers like PGR are making more money on interest. And given the fact that they’re sitting on billions of dollars, those little ticks in rates are a big deal to the bottom line.
Among the more specific opportunities for PGR, much of that is in its strong strategic position in the auto insurance market. As the No. 3 player, it is well positioned to gain market share from its competitors ahead of it and behind it.
Plus, its constant focus on automating and expediting the quote, support and claims process means that at this point, it is already operating at industry leading margins.
For example, as insurers fight for customers, PGR stock has the advantage of already having competitive rates that it doesn’t have to raise as much as the competition every year. This allows Progressive to quote increasingly better rates and still make more money than its competitors.
And it continues to deploy technologies that allow it to make more granular decisions about its customers. For example, it deployed a plug-in device that monitored drivers in real time. And then it rolled out an app that does the same thing.
At this point, it has collected 1.5 billion miles of individualized information on its drivers. And the drivers are motivated to use it, since if they’re better drivers than their general profile shows, they are likely to get discounted rates.
It’s this kind of forward thinking that has helped PGR become one of the leading insurers in the sector. And its history and continued commitment to these types of initiatives are what make it a very good choice right now.
Trading at a P/E of 13 and sharing a 1.8% dividend, it’s a great value. And given all the market gyrations, its 18% return in the past 12 months is very respectable.
Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough Stocks, Accelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.