Often overlooked in this era where investors are seeking out fast returns, insurance companies just might offer you a decent path to millionaire status over time.
Insurance is all about putting a price tag on risk, which makes it one of the most inflation-resilient business out there. After all, as costs go up, so do premiums, even if those premiums remain fairly consistent in terms of the percentage of value of the assets being insured.
In addition to that natural resilience to inflation, insurance companies have a fairly unique ability to make money by investing other people’s money. When you buy insurance, your premium is pooled with the premium of other insured people and is available for the company to pay out on claims. While in the hands of the insurance company, that money — known as float — can be invested by the insurance company, with the insurance company retaining any profits from that investment.
With those two strong features in mind, here are three insurance stocks that could make you a millionaire.
No. 1: A company that celebrates its rock-solid foundation
Prudential Financial (NYSE: PRU) is so focused on maintaining a rock-solid financial foundation that it uses an actual rock — the Rock of Gibraltar — as its company logo. It backs that up with a balance sheet that has over $320 billion in bonds on it and a total net equity above $28 billion .
Although the biggest insurance companies out there are fairly good at pricing risk, nobody gets it right all the time. A strong balance sheet — like the one that Prudential Financial has — helps an insurer cover those times when it needs to pay out more claims than it expected. That’s the financial rock that goes along with the physical one and gives investors good reason to believe that Prudential Financial has strong staying power.
When it comes to building a $1 million nest egg, after all, it helps if the companies you’re investing in have staying power. It’s likely that you’ll need to stay invested — and keep investing new money — over a fairly decent period of time in order to reach that high of a net worth.
No. 2: The master of investing the float
Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is perhaps best known as the company led by billionaire investing guru Warren Buffett. When it comes to investing the insurance float, Buffett has been doing it well for decades.
Indeed, in addition to its successful insurance lines, Berkshire Hathaway owns businesses such as BNSF Railroad, Duracell Batteries, Dairy Queen restaurants, and NetJets private aviation. On top of that, under Buffett’s direction, Berkshire Hathaway has amassed a multibillion dollar portfolio of major publicly traded companies.
Put it all together, and Berkshire Hathaway investors get the benefits of the insurance business plus its subsidiaries plus its investments in public companies. That combination provides a powerful foundation for investors looking for a potential path to millionaire status.
No. 3: An insurer you may not recognize as one
CVS Health (NYSE: CVS) might be best known by its network of pharmacies, but thanks to its purchase of health insurer Aetna, insurance is also a substantial driver of CVS Health’s revenues. A recent rough earnings release knocked its shares for a loop, but that decline might actually turn out to be decent news for investors with a longer-term time horizon.
Despite its short-term challenges, analysts expect CVS to earn $7.40 per share in 2024 and $8.22 per share in 2025 . Its recent market price of $55.90 means that it’s available for around 7.6 times its expected 2024 earnings and around 6.8 times its anticipated 2025 earnings.
That’s the sort of valuation you would expect from a company in decline, not one expected to have fairly stable operations over time. When you add its nearly 4.8% yield to what looks like a value price, you get a business that looks capable of potentially providing decent returns over time for patient investors.
Get started now
No matter how you invest, the journey to a million dollar portfolio will take time. The sooner you get started, the better your chances are of reaching that goal. So make today the day you decide whether one or more of these insurance companies deserves a spot in your portfolio. Once you’re well on your way to that seven figure net worth, you’ll be glad you took that first step.
Should you invest $1,000 in Berkshire Hathaway right now?
Before you buy stock in Berkshire Hathaway, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Berkshire Hathaway wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $544,015!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 30, 2024
Chuck Saletta has positions in CVS Health and Prudential Financial and has the following options: long January 2026 $105 calls on Prudential Financial, short January 2026 $82.50 puts on Prudential Financial, short January 2026 $95 puts on Prudential Financial, and short June 2024 $120 calls on Prudential Financial. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool recommends CVS Health. The Motley Fool has a disclosure policy.
3 Insurance Stocks That Could Make You a Millionaire was originally published by The Motley Fool
