Miller Value Partners, an investment management company, released its “Deep Value Strategy” first-quarter 2024 investor letter. A copy of the letter can be downloaded here. Equity markets continued to perform strongly in early 2024, following a successful 2023. The S&P 500 rose by over 10% in Q1. In the first quarter, Strategy returned 1.78% (net of fees) trailing the S&P 1500 Value Index’s 7.59% return and ahead of the S&P 600 Value Index, which was slightly positive. During the first two months, lower valuation and smaller cap stocks lagged the overall equity market. However, in March they took the lead. The Deep Value Select strategy had a weak performance in January and February, but it outperformed the Value and Small Cap indexes in March. In addition, please check the fund’s top five holdings to know its best picks in 2024.
Miller Value Deep Value Strategy featured stocks like Lincoln National Corporation (NYSE:LNC) in the first quarter 2024 investor letter. Headquartered in Radnor, Pennsylvania, Lincoln National Corporation (NYSE:LNC) operates multiple insurance and retirement businesses. On May 2, 2024, Lincoln National Corporation (NYSE:LNC) stock closed at $26.93 per share. One-month return of Lincoln National Corporation (NYSE:LNC) was -12.37%, and its shares gained 31.62% of their value over the last 52 weeks. Lincoln National Corporation (NYSE:LNC) has a market capitalization of $4.579 billion.
Miller Value Deep Value Strategy stated the following regarding Lincoln National Corporation (NYSE:LNC) in its first quarter 2024 investor letter:
“During the quarter, we initiated a position in Lincoln National Corporation (NYSE:LNC). Lincoln Financial is a 120-year-old financial services company that provides financial protection and security to its customers through annuities, life insurance, group protection and retirement plan services. Over the past two years, the company has seen significant headwinds in its Life Insurance segment and profit challenges across the business largely due to the Covid outbreak. New senior management has indicated a greater focus on strengthening the balance sheet, focusing on more capital-efficient new business, and improving long-term free cash flow generation. Over the past year, the company has conducted a series of transactions that have improved their balance sheet and enhanced the Firm’s capital ratios. Management is undertaking cost reduction actions and the headwinds in their life segment appear poised to turn to tailwinds over the next couple of years and potentially allow the segment to return to normalized profitability. In addition, the company’s new Head of Workplace Solutions whopreviously at MetLife is focused on improving the company’s Group and Retirement business, accelerating organic growth through new product offerings, and narrowing the segment margins with peers. If the company’s plans are executed well, Lincoln’s operating income could grow double digits over the next couple of years, improving company ROE (return on equity) and free cash flow conversion.
Lincoln is down 60%+ from its 2-year high, at an attractive 50% discount to book value and 30%+ normalized earnings yield. Achieving long-term free cash flow conversion targets would support annual free cash flow in excess of $1B. With a forward price-to-earnings (P/E) multiple close to four times, every one multiple point improvement generates approximately 25% in share price returns (significantly higher than the S&P 500 today which would be closer to 5% for each multiple point improvement and for the top five market caps, closer to 3%). Over the next 3-5 years, LNC returning to normalized earnings and valuation expanding back towards the peer group 20-year P/E average of 9.6x and 1.2x book value, would support upside potential near three times its current price levels.”
An insurance executive conferring with clients in a modern office, discussing policies.
Lincoln National Corporation (NYSE:LNC) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 31 hedge fund portfolios held Lincoln National Corporation (NYSE:LNC) at the end of the fourth quarter which was 25 in the previous quarter.
We previously discussed Lincoln National Corporation (NYSE:LNC) in another article, where we shared the list of best insurance dividend stocks to invest in. In addition, please check out our hedge fund investor letters Q1 2024 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
