We recently compiled a list of the 10 Best Financial Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where The Progressive Corporation (NYSE:PGR) stands against the other best financial stocks to buy according to hedge funds.
According to the Business Research Company, the market for financial services has expanded significantly in the last several years and is further expected to grow at a compound annual growth rate (CAGR) of 7.7% in the next few years.
The year 2024 was remarkable for the financial sector, as seen by the Financial Sector Index, which rose over 30% as of mid-December and outperformed the broader market by almost 5 percentage points. This expansion came after worries over mid-sized bank failures in early 2024, which turned out to be isolated events rather than a problem affecting the entire industry.
As of January 7, 2025, the market’s financial sector produced returns of 5.51% over three years, 9.68% over five years, and 9.49% over ten years. These numbers, however, pale in comparison to the sector’s remarkable success during the previous 12 months, which saw a return of 28.01%.
Looking forward, according to Fidelity’s report, the financial industry’s prospects for 2025 seem promising, backed by consistent economic expansion in the United States. It is projected that the Federal Reserve’s move to rate decreases in the second half of 2024 will boost confidence and lower credit risk. Falling rates have the potential to boost lending and deposit growth while also reducing net interest margins.
As per Fidelity analyst Matt Reed:
“Lower rates boost economic momentum, benefiting banks and payment processors alike.”
Banks that are well-diversified and have solid fundamentals are better equipped to handle a soft landing situation. Sensitive to consumer spending, payment processors are likewise poised for expansion as more accommodating monetary policy and strong consumer activity coincide.
Risks still exist, though. As per the aforementioned report, if the economy weakens, some lenders may face difficulties due to their exposure to commercial real estate and possible nonperforming loans. Nonetheless, financials start 2025 with significant momentum due to a less stringent regulatory agenda following the election and more prospects for mergers and acquisitions.
Michael Kantrowitz, chief investment strategist at Piper Sandler stated:
“I think investors have rotated a little bit out of some of the big tech companies and into the big financial companies,”
He claimed that while a lot of optimism about artificial intelligence (AI) is priced into tech businesses, some investor movement made sense since the rate environment has improved for bank earnings.
Deloitte’s 2025 banking and capital markets outlook report states that banks can strengthen their basis for sustainable growth with creativity and discipline as the banking industry adjusts to a low-growth, lower-rate environment. According to the report, the baseline scenario for economic growth in 2025 is projected to fall to 1.5%, with possible deviations between 1.0% and 1.9% due to slowing consumer spending, greater unemployment, and sluggish business investment. By Q2 of 2024, consumer debt had risen to $17.7 trillion, and by March 2024, savings from the pandemic had been spent, further straining the economy. Inflation is forecast to be around 2%, allowing for three to four rate cuts, bringing the federal funds rate down to 350-375 basis points. Treasury yields are projected to fall, and following two years of inversion, the yield curve may normalize. With the exception of economies that are under pressure, global central banks will likely choose to cut benchmark rates.
A team of accountants in a boardroom, discussing strategic moves of an insurance company.
Methodology
We sifted through holdings of financial ETFs and online rankings to form an initial list of 20 financial stocks. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 900 hedge funds in Q3 2024 to gauge hedge fund sentiment for stocks.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
The Progressive Corporation (NYSE:PGR)
Number of Hedge Fund Holders: 95
The Progressive Corporation (NYSE:PGR) provides private and commercial auto insurance, as well as specialty lines; it has about 20 million personal auto policies in force and is one of the major auto insurers in the United States. The company markets its plans directly over the phone and online, as well as via independent insurance companies in the US and Canada. Its premiums are divided almost evenly between the agent and direct channels. The firm also sells commercial auto plans and expanded into homeowners insurance through an acquisition in 2015.
One of the most successful franchises in the insurance sector and the Best Financial Stocks, The Progressive Corporation (NYSE:PGR) has continuously produced returns that lead the industry. However, due to the recent ups and downs in the auto insurance market, the company has experienced quite a bit of volatility.
The Progressive Corporation (NYSE:PGR) produced impressive results in the third quarter, with GAAP EPS of $3.97, $0.08 more than expected, and revenue of $19.46 billion, a 27% year-over-year growth. Since it paid out less in claims and expenses than it made in premiums, the company’s combined ratio of 89% showed profitability. Strong demand and more media spending drove Progressive to add a record 1.6 million new policies. Record-high direct channel applications and enhanced customer conversions led to strong growth in both direct and agency channels, setting up the business for long-term increases in market share.
The price objective for The Progressive Corporation (NYSE:PGR) was boosted by Wells Fargo from $299 to $302, and the firm maintained its Overweight rating on the shares. According to the firm, Progressive is well-positioned to grow and continue to gain market share as long as interest rates stay steady and margins are at all-time highs.
Andreas Halvorsen’s Viking Global was the largest stakeholder in the company among the funds in Insider Monkey’s database. It owns 3.49 million shares worth $884.58 million as of Q3.
Bretton Fund stated the following regarding The Progressive Corporation (NYSE:PGR) in its Q3 2024 investor letter:
“We think The Progressive Corporation (NYSE:PGR) is the most sophisticated auto insurer in the business. It leverages its vast amount of driver data and is usually one of the first in the industry to recognize important shifts in things like driver behavior and collision costs. Progressive was one of the first to raise rates aggressively in 2021 to offset the higher costs from the more frequent car crashes and higher repair costs post-Covid. By raising prices before its competitors did, Progressive lost customers and wasn’t able to grow as fast as it usually does. The rest of the industry has since caught up and increased rates. Progressive’s rates are now comparatively attractive once again, and that’s led to highly profitable growth. Through September 30, its premiums are up 20% over last year, which is great for a low-growth industry like auto insurance. Progressive added 1.5% to the fund this quarter.”
Overall, PGR ranks 6th on our list of the Best Financial Stocks To Buy According to Hedge Funds. While we acknowledge the potential for PGR to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than PGR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.