It might not be obvious to the casual observer, but right now, today, The Allstate Corporation (NYSE:ALL) stock offers one of the best values available in the insurance industry. Why?
Three reasons.
Allstate stock is cheap
When you stack up Allstate stock against two of its rivals in property and casualty insurance — The Progressive Corporation (NYSE:PGR) and American International Group Inc (NYSE:AIG) — it’s clear that The Allstate Corporation (NYSE:ALL) is one of the cheapest options out there. Its 10.6 price-to-earnings ratio is 8% below the P/E of AIG. It’s a whopping 35% discount to price that a share of Progressive.
And as is so often the case, with a low valuation comes a big boost in dividend yield. Allstate stock currently yields a tidy 2% dividend. That’s nearly twice the payout at Progressive, and infinity-times-better than dividend-less AIG.
Allstate: bargain-priced growth
Why aren’t investors paying up for The Allstate Corporation (NYSE:ALL) stock (yet)? Part of the reason, one presumes, is that the stock’s not exactly a whirlwind grower.
And yet, the discounted price on Allstate stock still doesn’t make sense. If it’s true that AIG may outgrow Allstate over the next few years, Progressive … won’t. Yet investors haven’t yet woken up to the fact that they can buy a slightly faster growth rate in The Allstate Corporation (NYSE:ALL) stock, and get it for a much lower price.
Perhaps most important to investors, though, is the simple fact that out of these three big insurance concerns, The Allstate Corporation (NYSE:ALL) is the firm generating the most cash from its business — and it gives you the biggest free cash flow bang for your buck.
Measured by dividing a company’s market capitalization (the price you pay for Allstate stock) into its free cash flow (the money your investment generates for you), Allstate offers investors quite simply the best free cash flow yield of these three companies. Put even more simply, for every dollar you invest in a share of The Allstate Corporation (NYSE:ALL) stock today, you can expect the company to generate nearly 11.3 cents’ worth of real cash profits on your investment.
ALL free cash flow yield data by YCharts.
Allstate may ultimately use this cash to pay you bigger dividends (it already pays a 2% dividend — more than either Progressive or AIG), to buy back shares (increasing the size of your stake in the company for every share it takes off the table), or to reinvest in its business and maintain its lead over rivals for years to come. Any way you look at it, though, The Allstate Corporation (NYSE:ALL)’s ability to generate cash offers investors a great reason to invest.
And that, Fools, is the reason I think now’s a great time to buy Allstate stock.
The article It’s Time to Buy Allstate Stock. Here’s Why. originally appeared on Fool.com.
Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool recommends, owns shares of, and has options on, AIG.
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