Richard Band: Insured Value
07/04/2003 12:00 am EST
"The odds are in our favor," says Richard Band , who is well-known for his conservative nature and emphasis on patience and value. The editor of Profitable Investing notes, "The bear is gone--at least for the remainder of this year, and possibly quite a bit longer. We've just had one of the most impressive rallies of the past 50 years. Such strength almost never occurs on the eve of a major relapse." His latest buy is a value and safety play in the insurance sector.
"With dividends in mind, I’m adding a conservatively managed life insurance company to our model portfolio: Jefferson-Pilot (JP NYSE). Based in Greensboro, North Carolina, Jefferson-Pilot boasts $30 billion in assets and ranks 11th largest among the nation’s life insurers in sales. The company also operates a highly profitable broadcasting arm, with 17 radio and three network TV stations. "Now celebrating a century in business, this company is a model of financial strength, squeaky-clean governance and long-term growth: Its three insurance units all carry the coveted AAA rating from Standard & Poor’s for claims-paying ability. Its corporate policy requires that at least 75% of the board of directors come from outside the company. No insider can serve on the crucial Audit, Compensation or Nominating and Governance Committees.
"Let’s not overlook the nifty yield, just north of 3%. It sure beats the less-than-1% of most money market funds. Dividends have been sweetened every year since 1969. In the past decade, the payout has grown at a compound annual rate of 6.7%—more than twice as fast as the cost of living. Counting dividends as well as capital gains, JP created 78% more wealth in the ten years ended December 31, 2002, than the S&P 500. You might expect a stock with these characteristics to be priced in the clouds. Not so. Jefferson-Pilot is trading at a modest 12 times this year’s estimated earnings. (The S&P is around 19 times estimated earnings.) In the late 1990s, JP sold for as much as 18 times forward earnings, so the stock is cheap compared with not only the market but also its own history. Buy at $44 or less. On top of the dividend, I’m looking for the stock to gain 20% or more in the coming year. We are adding the stock to the ‘World-Class Franchises’ section of our portfolio."