We recently compiled a list of the 8 Most Profitable Large Cap Stocks To Invest In. In this article, we are going to take a look at where The Progressive Corporation (NYSE:PGR) stands against the other profitable large cap stocks.

US Stocks Surge as Economic Outlook Brightens

In the second half of 2024, the financial markets are navigating a complex landscape marked by volatility and cautious optimism. Recent reports indicate that the US economy has shown resilience, with growth rates remaining solid despite concerns about inflation and potential recession. Analysts from JPMorgan Asset Management highlight that the US economy has shown strong momentum in recent months, fueled by resilient consumer spending. Analysts suggest that with few excesses in cyclical sectors, the likelihood of a recession triggered by internal factors remains low. Moderate consumer spending is expected to support steady growth into 2025. However, with the upcoming US election, shifting monetary policies, and ongoing geopolitical tensions, there are external risks that could impact this expansion.

On October 9, 2024, US stocks rose for the second consecutive session, with the S&P 500 and Dow Jones Industrial Average closing at record highs. The S&P 500 climbed 0.71% to finish at 5,792.04, while the Nasdaq Composite gained 0.6%, closing at 18,291.62. The Dow surged by 431.63 points, or 1.03%, to settle at 42,512.00 and at a record close. Technology stocks led the rally, reflecting strong investor sentiment despite ongoing geopolitical concerns.

The market’s positive momentum followed the release of minutes from the Federal Reserve’s September meeting, which disclosed a preference among many participants for a larger rate cut. Mike Bailey, director of research at FBB Capital Partners, noted that the Fed’s actions are a key driver behind the market’s performance.

Overall, Wall Street is showing resilience, supported by optimism regarding the Fed’s ability to manage a soft landing for the economy, especially after the September jobs report showed strong growth in the labor market.

In a recent interview on CNBC’s “Closing Bell,” Malcolm Ethridge, managing partner at Capital Area Planning Group, shared his insights on the current state of the markets, particularly regarding mega-cap stocks and the impact of artificial intelligence (AI). Ethridge emphasized that the ongoing bull market, which has seen a remarkable 60% increase over the past two years, is likely to continue, driven primarily by advancements in AI technology. He noted that AI has demonstrated significant staying power, with companies like Microsoft and NVIDIA leading the charge. Ethridge posed an intriguing question: which stock will emerge as the next major player in the ongoing AI arms race?

Ethridge pointed out that mega-cap companies have not relied heavily on borrowing for growth. As the Federal Reserve begins to cut rates, he believes this will enable more companies to issue debt or borrow and invest in AI, potentially fueling further market expansion. He cautioned, however, that historical norms may not apply in this unique economic environment shaped by the COVID-19 pandemic. Overall, Ethridge remains optimistic about mega-cap stocks leading the way.

Methodology

To compile our list of the 8 most profitable large-cap stocks to invest in, we used stock screeners from Finviz and Yahoo Finance. First, we defined large-cap stocks as those with a market capitalization between $20 billion and $200 billion. Next, we focused on profitability by filtering for stocks that had an estimated 5-year EPS growth rate of over 10%. We sorted our results based on market capitalization and picked the top 20 stocks.

From this initial list of 20 profitable large-cap stocks, we further narrowed our choices to stocks that had positive trailing twelve-month (TTM) net income and stocks that have grown their net income positively over the past 5 years. To ensure the reliability of our findings, we consulted reputable sources such as SeekingAlpha, which provided insights into the net income compound annual growth rate (CAGR) over the past five years, and Macrotrends, which offered information on TTM net income.

Finally, from this list of large-cap stocks that met our criteria, we focused on the top 8 stocks most favored by institutional investors. Data for the hedge fund sentiment surrounding each stock was taken from Insider Monkey’s database of 912 elite hedge funds. The 8 most profitable large-cap stocks to invest in are ranked below in ascending order based on the number of hedge funds holding stakes in them as of Q2 2024.

Why do we care about what hedge funds do? 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)

TTM Net Income: $6.89 Billion 

5-Year Net Income CAGR: 16.24%

Number of Hedge Fund Holders: 89

The Progressive Corporation (NYSE:PGR) is an American insurance company that ranks among the top 5 on our list of the 8 most profitable large-cap stocks to invest in. The company offers various types of insurance, including car, home, and commercial coverage. It is the second-largest personal auto insurer in the US. The corporation is also a leading seller of commercial auto, motorcycle, and boat insurance.

During the second quarter, The Progressive Corporation (NYSE:PGR) continued to invest in enhancing its commercial auto and business owners’ policy (BOP) products. The company rolled out a new commercial auto product model in two additional states and is on track to introduce it to 14 states by year-end. Currently, the BOP product is available in 46 states, with a new model launched in four states, bringing the total to 22. Additionally, The Progressive Corporation (NYSE:PGR) launched a pilot program of its new multi-product quoting system for agents, allowing them to quote both commercial auto and BOP products seamlessly, with plans for further expansion in the coming months.

The company delivered impressive second-quarter 2024 results. The Progressive Corporation (NYSE:PGR) reported a remarkable 22% increase in net premiums written year-over-year and a combined ratio of 91.9, indicating robust profitability despite significant weather-related challenges. Policies in force (PIF) were up 9% year-over-year.

With personal auto policies growing by 1.1 million since the first quarter of 2024, the corporation has successfully added 2 million policies in the first half of 2024.

The Progressive Corporation (NYSE:PGR) also experienced strong growth in its Personal Lines segment in the second quarter of 2024. The company reported net premiums written of $14.6 billion, marking a 26% increase compared to the same quarter last year. This growth was driven by a surge in new business applications, resulting in nearly 28 million policies in force by the end of the quarter.

Over the past 5 years, The Progressive Corporation (NYSE:PGR) has grown its net income at a compound annual growth rate (CAGR) of 16.24%, while its levered free cash flow has increased at a CAGR of 11.13% during the same period. Overall, the corporation’s performance reflects healthy profitability and a robust demand for its insurance offerings.

According to Insider Monkey’s Q2 database of over 900 hedge funds, 89 hedge funds held stakes in The Progressive Corporation (NYSE:PGR). Middle Coast Investing stated the following regarding The Progressive Corporation (NYSE:PGR) in its Q3 2024 investor letter:

“Progressive Insurance (NYSE:PGR) is the best example of both a macro and micro transition. Used car repair cost inflation (macro) hurt its profitability. It was early in raising prices to deal with that, and has been growing new policies in force much faster than competitors. As it has overcome the cost inflation issue, its profits have soared, and should continue to grow. The stock price has doubled in the last 14 months.”

Overall PGR ranks 5th on our list of the most profitable large cap stocks to invest in. While we acknowledge the potential of PGR as an investment, our conviction lies in the belief that 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.

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Disclosure: None. This article is originally published at Insider Monkey.