One should look for hidden jewels in the stock market, which provide stability and development possibilities. Three businesses have stood out in this endeavor; each represents a different industry — banking, insurance and energy. They are all united by opportunity and perseverance.
The first one excels in the energy field, namely in gas and oil transportation. Growing Time Charter Equivalent (TCE) rates indicate that geopolitical concerns and an aging tanker fleet have driven the company’s market performance. Meanwhile, the second one deftly negotiates the complex world of insurance. The company has maintained policyholders in the face of substantial premium hikes and enhanced the performance of its Property & Casualty (P&C) sector by implementing a methodical plan for profitability restoration.
Finally, with strong financial indicators, the third one commands respect in regional banking. Strategic balance sheet expansion is the foundation for its strong performance, as seen by its earnings per share (EPS), return on equity and net interest income. Overall, these businesses offer more than just financial prospects. They are examples of resilience against volatile markets.
Frontline (FRO)
Frontline (NYSE:FRO) has already secured 72% of Suezmax days at $52,800 per day, 69% of Aframax (LR2) days at an exceptional $67,800 per day, and 81% of Very Large Crude Carrier (VLCC) days at an average TCE cost of $55,100 per day for the first quarter of 2024 (in Q4 2023). These rising rates are load-to-discharge-based and the number of ballast days may impact them.
Moreover, the tanker business is significantly affected ton-mile by the heightened tensions in the Middle East and the interruptions in the Red Sea/Aden area. Additionally, the United States is putting more pressure on Russia’s price cap evasions and the so-called Dark Fleet. Due to economies of scale, bigger boats such as VLCCs are preferred in the expanding trading lanes as non-OPEC oil output rises, especially from the U.S. and Brazil.
Finally, with 133 VLCCs scheduled to reach 20 years old in 2024 alone, a sizable portion of the fleet’s current age is nearing or beyond 20. The Suezmax fleet has a comparable pattern. Thus, the aging fleet and rising ordering activity indicate a probable decrease in available tonnage, which might compress supply and justify higher prices.
Horace Mann (HMN)
Horace Mann‘s (NYSE:HMN) notable advancements in the P&C sector are one of its main advantages. Compared to Q1 2023, the P&C combined ratio increased by 13 points to 99.9% in Q1 2024. The combined ratio is the percentage of the premiums an insurer collects that it pays out in claims and expenses, before counting its profits from investing those premiums.
This improvement shows that the segment’s cost control and efficiency have improved. The segment’s $11 million profit represented a substantial improvement over the previous year’s deficit and showed the value of the company’s multi-year profitability restoration plan.
Additionally, Horace Mann projects overall premium increases in cars and property of around 40% and 50%, respectively, from 2022 to 2024. This calculated action aims to increase profitability. Further, the policyholder retention has stayed the same despite these significant premium hikes, indicating consumer loyalty and contentment with the value offered by the business. Thus, the steady retention rates in the face of increasing premiums demonstrate the efficacy of Horace Mann’s client retention techniques.
Further, Q1 catastrophe losses were higher than the 10-year and five-year norms. However, they were less than 2023 on a quarter-over-quarter basis. Overall, the resilience and effectiveness of the company’s claims management practices are demonstrated by its fundamental ability to manage higher catastrophic losses while increasing the consolidated bottom line.
Columbia Banking System (COLB)
Columbia Banking System (NASDAQ:COLB) delivered operational EPS of $0.65 and $0.59 for Q1 2024. The company uses equity capital effectively, reflected in the operational return of 16% for tangible equity on average, reflecting its high returns to shareholders.
Further, Q1’s net interest income of $423 million represented a $30 million decline from the prior quarter. This is mostly due to increased deposit expenses and decreased revenue from investment securities. Despite this drop, the net interest margin (NIM) was 3.52%, falling between the predicted range of 3.45% and 3.60%. Notably, price reductions on wholesale and promotional funding caused the NIM to rise to 3.55% in March. Thus, this demonstrates successful margin management in a challenging environment for interest rates.
Lastly, for Q1, Columbia Banking System saw growth in deposits of $100 million and loans of $200 million. After declining in January, non-sparing demand deposits stabilized in February and March, indicating a stabilizing deposit base. Thus, it is evident that the company’s main strength that supports its expansion plan is its capacity to increase its balance sheet.
As of this writing, Yiannis Zourmpanos held long positions in HMN and COLB. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
