4 Financial Sector Stocks Crushing the S&P 500 in 2022

We found ourselves in a very unique economic environment following a once-in-a-lifetime pandemic.

The Fed’s pivot to a hawkish nature coupled with geopolitical uncertainties has brought the bears out of hibernation, pushing the bulls out of the arena.

However, financial services companies, such as insurance companies, may see their profit margins increase in higher interest rate environments.

Four stocks from the Zacks Finance sector – Aflac AFL, Cigna Corp. CI, Unum Group UNM and Berkshire Hathaway B (BRK.B) – could all be considerations for investors. Below is a chart illustrating how the stocks of the four have performed year-to-date with the integrated S&P 500 as a benchmark.

Image source: Zacks Investment Research

Let’s dive deeper into each of them.

Unum Group

Unum Group offers disability insurance, long-term care insurance, life insurance, employee-paid benefits and related services.

Analysts have taken a bullish stance on the company’s earnings outlook in recent months, pushing the stock into a favorable No. 2 (buy) Zacks rating.

Zacks Investment Research
Image source: Zacks Investment Research

In addition, the company generously rewards its shareholders; UNM’s annual dividend yields a solid rock of 3.2%, coupled with a substantial five-year annualized dividend growth rate of 6.3%.

Zacks Investment Research
Image source: Zacks Investment Research

UNM shares appear to be more than reasonably priced; The company’s 6.7X forward earnings multiple is just a few ticks above its five-year median, representing a steep 49% discount to its Zacks sector.

The company sports a style score of an A for value.

Zacks Investment Research
Image source: Zacks Investment Research

Aflac

Aflac is an insurance titan, ranking as the largest supplemental insurance provider in the United States.

Aflac has demonstrated an incredible commitment to its shareholders, wearing the elite title of Dividend Aristocrat for 39 consecutive years of increased dividend payouts.

The company’s annual dividend yields an industry-best rate of 2.7%, coupled with a five-year annualized dividend growth rate of 10.8%.

Zacks Investment Research
Image source: Zacks Investment Research

Aflac’s current valuation levels are solid, further bolstered by its style score of a B for value. The company’s 10.8X forward P/E ratio is well below its five-year median of 11.2X, reflecting an 18% discount to its Zacks sector.

Zacks Investment Research
Image source: Zacks Investment Research

Cigna

Cigna is a global health services company that delivers choice, predictability, affordability and access to quality care through integrated capabilities and connected, personalized solutions. CI sports a Zacks Rank #2 (Buy).

Cigna rewards its shareholders with its 1.5% annual dividend. On the face of it, that’s considerably lower than its Zacks industry average of 2.6%.

However, the company’s triple-digit annualized dividend growth rate of 260% over five years takes a huge toll.

Zacks Investment Research
Image source: Zacks Investment Research

Additionally, the company has a favorable growth profile; earnings are expected to climb 12.3% in FY22 and a further 10.3% in FY23.

The expected earnings increases come on top of expected revenue growth of 3.6% and 4.9% for FY22 and FY23, respectively.

Zacks Investment Research
Image source: Zacks Investment Research

Berkshire Hathaway B

Berkshire Hathaway is a diversified holding company, with subsidiaries in insurance, railroads, utilities, manufacturing services, retail and home building.

Analysts have raised their earnings outlook for the current and next fiscal year in recent months, helping the stock rise to a favorable Zacks No. 1 ranking (Strong Buy).

Zacks Investment Research
Image source: Zacks Investment Research

Stocks are cheap relative to where they have resided in the past; shares are trading at a forward earnings multiple of 18.9X, off the five-year median of 22.4X and highs of 27.2X in 2021.

Zacks Investment Research
Image source: Zacks Investment Research

Additionally, BRK.B has consistently topped quarterly estimates, beating Zacks’ consensus EPS estimate in three of its last four earnings releases, with the average surprise coming in double digits at 17.6%.

Conclusion

In 2022, stocks fell due to a complex economic environment. With inflation at historic highs, the Fed was forced into a hawkish stance, raising borrowing rates.

In times of high interest rates, financial stocks, such as insurance companies, can see their profit margins increase.

Aflac AFL, Cigna CI, Unum Group UNM and Berkshire Hathaway B (BRK.B) could all be considerations for investors in the fight against a hawkish Fed.

5 shares ready to double

Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2021. Previous recommendations climbed +143.0%, +175.9%, +498 .3% and +673.0%.

Most of the stocks in this report fly under the radar on Wall Street, which provides a great opportunity to get in on the ground floor. Today, check out these 5 potential home runs >>

Want the latest recommendations from Zacks Investment Research? Today you can download 7 best stocks for the next 30 days. Click to get this free report

Berkshire Hathaway Inc. (BRK.B): Free Stock Analysis Report

Aflac Incorporated (AFL): Free Stock Analysis Report

Cigna Corporation (CI): Free Stock Analysis Report

Unum Group (UNM): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

About Robert Wright

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