Top Insurance Stocks to Consider Buying: American International Group, Inc. (AIG), HCC Insurance Holdings, Inc. (HCC)

Hartford Financial Services Group Inc (NYSE: HIG)

1). Hartford’s current P/E is 25.83, which is quite high, compared to industy’s average, and, in principle, would not suggest that the company is undervalued. However, the forward P/E and the P/B ratios paint a different picture. The stock’s forward P/E is an attractive 7.85 (the lowest of the three stocks analyzed in this post), and the P/B is very low as well, at just 0.46, even lower than AIG’s.

2). The stock’s average target price is $26.93, which implies a potential 6.65% upside from the current stock price. However, unlike AIG, the two most current analyst reports give the stock a lower target price: Barclays has a $22 price target, and FBR capital places it at $25, with both analysts giving the stock neutral ratings. This could be a sign that analysts are not expecting the stock to outperform in 2013, but are not bearish on the stock either.

3). HIG pays a dividend of $0.40/share (a yield of 1.59%). Like HCC, the company does have a very good dividend paying record, and has been paying its shareholders regularly since 1996. At any rate, current yields are historically low for this stock.

Bottom Line

While all three stocks have their strengths, I believe AIG might have an overall edge. Even though it does not currently pay a dividend, extremely low valuations and the possibility of a strong rebound make this stock a great contrarian value play. After the settlement of the bailout package, AIG is now a cleaner, more efficient, less risky company, and yet it is still retains its position as one of the world’s insurance giants. A bull market, a recovering economy, and the very real possibility of a great turn-around story, should make investors seriously consider buying this one.

The article Top Insurance Stocks to Consider Buying originally appeared on Fool.com and is written by Alex Bastardas.