We recently compiled a list of the 7 Most Undervalued Financial Stocks To Buy According To Analysts. In this article, we are going to take a look at where Mercury General Corporation (NYSE:MCY) stands against the other undervalued financial stocks.
The financial industry outperformed the S&P 500, with the Dow Jones U.S. Financial Services Index returning more than 37% in 2024 compared to the S&P 500 index’s return rate of 25%. This growth undermines the mid-sized bank collapses in early 2024, which proved to be isolated events in the broader market.
Meanwhile, as we have pointed out in our article, 10 Best Financial Services Stocks To Buy According to Analysts, the financial services market has expanded notably in the last several years and is expected to grow at a CAGR of 7.2% between 2025 and 2029.
Financial Services Market Outlook
According to Fidelity’s report, the prospects for the financial industry in 2025 seem promising, backed by positive economic expansion in the U.S. The Fed’s rate reduction in the second half of 2024 will improve confidence and lower credit risk. This will ultimately boost lending and deposits while reducing net interest margins.
In 2025, financial services are going to be much more advanced, driven by AI. According to IBM’s 2024 report, Generative AI is revolutionizing financial services by enhancing customer satisfaction, bringing new features in risk management, and personalized financial solutions. Deloitte’s 2025 investment management outlook projects AI and the changing digital landscape to massively impact the investment management industry in 2025.
Whereas, Deloitte’s 2025 banking and capital markets outlook highlights that banks can reinforce their basis for sustainable growth as the banking industry adjusts to a low-growth, lower-rate scenario. Goldman Sachs projects a modest U.S. GDP growth of 2.5% in 2025, while the PCE inflation is expected to be around 2.1%.
The potential risks in the financial industry always exist. In case the economy weakens, some lenders can be exposed to commercial real estate risks and possible non-performing loans. Nevertheless, the new Trump era has started with a lot of optimism and more prospects for mergers and acquisitions ahead.
Our Methodology
We shifted through the Finviz screener to identify stocks in the financial sector that had a forward P/E of less than 15 and a projected upside potential of over 30% based on analyst price targets, as of January 21. The 7 most undervalued financial stocks to buy are ranked in ascending order of analyst upside. These stocks are also popular among elite hedge funds.
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).
An auto repair shop with a car in the foreground, demonstrating the need for comprehensive automobile coverage.
Mercury General Corporation (NYSE:MCY)
Analyst Upside: 66.01%
Forward P/E: 6.63
Mercury General Corporation (NYSE:MCY) is an insurance holding company focused on writing personal automobile insurance business. The company offers homeowners insurance in almost 10 states, commercial automobile insurance in four states, and mechanical protection insurance in various states.
Mercury General Corporation (NYSE:MCY) shares have been trading down by 27% year-to-date following challenging circumstances of potential losses due to wildfires. However, on January 12, Raymond James reiterated an Outperform rating on MCY shares, with a price target of $80, representing an upside of 66% from the stock’s current price. Raymond’s analyst has expressed confidence in the company’s recovery. The analyst pointed out that insurance is mainly based on replacement costs rather than market value.
Despite the massive economic losses, Mercury General Corporation’s robust top-line growth and underlying profitability will assist in the ongoing catastrophe. However, Raymond has reduced its Q1 2025 EPS estimate to $0, down from the previous outlook of $1.60 per share.
Overall MCY ranks 3rd on our list of the most undervalued financial stocks to buy according to analysts. While we acknowledge the potential of MCY 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 timeframe. If you are looking for an AI stock that is more promising than MCY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
Disclosure: None. This article is originally published at Insider Monkey.