6. Arch Capital Group Ltd. (NASDAQ:ACGL)
Forward PE as of June 24: 11.4
Number of Hedge Fund Holders: 45
Arch Capital Group Ltd. (NASDAQ:ACGL) is a Bermuda-based company that offers insurance, reinsurance, and mortgage insurance products. The company is trading at a forward PE of 11.4x. The Street-high estimate of $120 represents an over 20% upside to Arch Capital’s stock from June 24 levels. The company takes the fifth position on our list of best-undervalued stocks to buy.
Arch Capital’s strength lies in its strategically diversified revenue avenues, which contribute to its resilience in the insurance market. The insurance segment accounts for 36% of its premiums and offers a wide range of products, including property, casualty, and specialized lines like professional indemnity and medical liability. This diversification not only spreads risk but also ensures consistent revenue sources and reduces the impact of market fluctuations on the company’s earnings.
The reinsurance segment makes up 58% of premiums. The segment has shown remarkable growth with a significant 41% increase year-over-year. This growth shows Arch’s expertise in underwriting and also at seizing market opportunities. By providing reinsurance to other insurers, the company further diversifies its income sources while leveraging its underwriting capability to capitalize on evolving market conditions. These two strengths put Arch Capital in a favorable light in the competitive insurance landscape.
Moreover, Arch Capital’s recent acquisition of Allianz’s US middle market and entertainment businesses allows it to increase its presence in the $100 billion-plus US middle market. This strategic diversification aligns with the company’s goal to capitalize on diverse revenue sources.
In the first quarter, 45 hedge funds had stakes in Arch Capital Group Ltd. (NASDAQ:ACGL), with total positions worth $1.55 billion. As of March 31, Egerton Capital Limited is the most prominent shareholder in the company with a stake worth $314.38 million.
Artisan Value Fund stated the following regarding Arch Capital Group Ltd. (NASDAQ:ACGL) in its first quarter 2024 investor letter:
“Turning back to positive performers, other winners were Arch Capital Group Ltd. (NASDAQ:ACGL) and Airbus. Arch, a global reinsurer, has experienced strong growth over the past year as reinsurance markets have been in an upswing in terms of pricing and premium growth, while rising interest rates boosted net interest income. Additionally, margins benefited from lower acquisition costs, better expense management and reduced catastrophe losses. In its mortgage insurance business, high interest rates are a headwind to top-line growth but a tailwind for margins. Arch is an industry leader capably managed by a long-tenured team that has achieved an enviable underwriting record while at the same time seeking opportunistic growth. It has shown discipline in pulling back from writing business when pricing is soft, patiently waiting for turns in the cycle to put its strong capital position to work.”
