Heritage Insurance Stock Gains 81% YTD: Should You Buy Now or Hold?

The proven Zacks Rank system focuses on earnings estimates and estimate revisions to find winning stocks. Nevertheless, we know that our readers all have their own perspectives, so we are always looking at the latest trends in value, growth, and momentum to find strong picks.

Considering these trends, value investing is clearly one of the most preferred ways to find strong stocks in any type of market. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.

In addition to the Zacks Rank, investors looking for stocks with specific traits can utilize our Style Scores system. Of course, value investors will be most interested in the system's "Value" category. Stocks with "A" grades for Value and high Zacks Ranks are among the best value stocks available at any given moment.

One company value investors might notice is NMI (NMIH). NMIH is currently sporting a Zacks Rank of #2 (Buy), as well as an A grade for Value.

Another valuation metric that we should highlight is NMIH's P/B ratio of 1.45. Investors use the P/B ratio to look at a stock's market value versus its book value, which is defined as total assets minus total liabilities. NMIH's current P/B looks attractive when compared to its industry's average P/B of 1.64. Within the past 52 weeks, NMIH's P/B has been as high as 1.63 and as low as 1.20, with a median of 1.33.

Finally, investors should note that NMIH has a P/CF ratio of 8.37. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. NMIH's P/CF compares to its industry's average P/CF of 11.93. NMIH's P/CF has been as high as 9.38 and as low as 6.91, with a median of 7.70, all within the past year.

The Travelers Companies (TRV) may be another strong Insurance - Property and Casualty stock to add to your shortlist. TRV is a # 2 (Buy) stock with a Value grade of A.

The Travelers Companies is trading at a forward earnings multiple of 12.53 at the moment, with a PEG ratio of 1.12. This compares to its industry's average P/E of 28.75 and average PEG ratio of 2.89.

TRV's price-to-earnings ratio has been as high as 17.36 and as low as 10.57, with a median of 11.61, while its PEG ratio has been as high as 1.71 and as low as 0.98, with a median of 1.07, all within the past year.

Additionally, The Travelers Companies has a P/B ratio of 2.07 while its industry's price-to-book ratio sits at 1.64. For TRV, this valuation metric has been as high as 2.22, as low as 1.75, with a median of 1.99 over the past year.

These figures are just a handful of the metrics value investors tend to look at, but they help show that NMI and The Travelers Companies are likely being undervalued right now. Considering this, as well as the strength of its earnings outlook, NMIH and TRV feels like a great value stock at the moment.

Zacks Investment Research

Taking full advantage of the stock market and investing with confidence are common goals for new and old investors, and Zacks Premium offers many different ways to do both.

Featuring daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, the research service can help you become a smarter, more self-assured investor.

Zacks Premium also includes the Zacks Style Scores.

What are the Zacks Style Scores?

The Zacks Style Scores is a unique set of guidelines that rates stocks based on three popular investing types, and were developed as complementary indicators for the Zacks Rank. This combination helps investors choose securities with the highest chances of beating the market over the next 30 days.

Based on their value, growth, and momentum characteristics, each stock is assigned a rating of A, B, C, D, or F. The better the score, the better chance the stock will outperform; an A is better than a B, a B is better than a C, and so on.

The Style Scores are broken down into four categories:

Value Score

Finding good stocks at good prices, and discovering which companies are trading under their true value, are what value investors like to focus on. So, the Value Style Score takes into account ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to highlight the most attractive and discounted stocks.

Growth Score

While good value is important, growth investors are more focused on a company's financial strength and health, and its future outlook. The Growth Style Score takes projected and historic earnings, sales, and cash flow into account to uncover stocks that will see long-term, sustainable growth.

Momentum Score

Momentum investors, who live by the saying "the trend is your friend," are most interested in taking advantage of upward or downward trends in a stock's price or earnings outlook. Utilizing one-week price change and the monthly percentage change in earnings estimates, among other factors, the Momentum Style Score can help determine favorable times to buy high-momentum stocks.

VGM Score

What if you like to use all three types of investing? The VGM Score is a combination of all Style Scores, making it one of the most comprehensive indicators to use with the Zacks Rank. It rates each stock on their combined weighted styles, which helps narrow down the companies with the most attractive value, best growth forecast, and most promising momentum.

How Style Scores Work with the Zacks Rank

A proprietary stock-rating model, the Zacks Rank utilizes the power of earnings estimate revisions, or changes to a company's earnings outlook, to help investors create a successful portfolio.

It's highly successful, with #1 (Strong Buy) stocks producing an unmatched +25.41% average annual return since 1988. That's more than double the S&P 500. But because of the large number of stocks we rate, there are over 200 companies with a Strong Buy rank, plus another 600 with a #2 (Buy) rank, on any given day.

This totals more than 800 top-rated stocks, and it can be overwhelming to try and pick the best stocks for you and your portfolio.

That's where the Style Scores come in.

To have the best chance of big returns, you'll want to always consider stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B, which will give you the highest probability of success. If you're looking at stocks with a #3 (Hold) rank, it's important they have Scores of A or B as well to ensure as much upside potential as possible.

As mentioned above, the Scores are designed to work with the Zacks Rank, so any change to a company's earnings outlook should be a deciding factor when picking which stocks to buy.

Here's an example: a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one with Style Scores of A and B, still has a downward-trending earnings outlook, and a bigger chance its share price will decrease too.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: MGIC Investment (MTG)

Based in Milwaukee, WI, and formed in 1957, MGIC Investment Corp. is the parent company of Mortgage Guaranty Insurance Corporation, the largest private mortgage insurer in the United States. It established the private mortgage insurance (PMI) industry to provide a private market alternative to federal government insurance programs for families wanting to buy a home with less than a 20% down payment. With a focus on sustainable homeownership, MGIC Investment provides a critical component of the country's residential mortgage finance system by protecting mortgage investors from credit losses.

MTG is a #3 (Hold) on the Zacks Rank, with a VGM Score of B.

It also boasts a Value Style Score of B thanks to attractive valuation metrics like a forward P/E ratio of 8.72; value investors should take notice.

For fiscal 2024, two analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.05 to $2.81 per share. MTG boasts an average earnings surprise of 16.3%.

With a solid Zacks Rank and top-tier Value and VGM Style Scores, MTG should be on investors' short list.

Zacks Investment Research