The investment world is full of products and services. Many are essential, such as food and gasoline. Others are more discretionary, like airfares and vacation destinations. When the economy gets uncertain, however, consumers tend to pull back spending on discretionary items and focus more on staples.
Those staple goods and services cost more these days. While that’s unfortunate as a consumer, it could be beneficial to shareholders who buy at a reasonable price.
One essential for consumers soaring in price today is auto insurance. Car premiums are soaring, with some customers seeing 80 percent jumps over the last two calendar years.
Part of the higher costs are from the higher expenses from managing a claim, including finding suppliers to provide body work and repairs when claims are made.
The insurance companies themselves have been feeling the pressure. But as that eases, prices should head higher.
Action to take: In the auto insurance space, Allstate (ALL) looks attractive today. Shares trade for 9 times forward earnings, and the stock yields about 3.1 percent.
It’s one of the larger players, and has a long history, as well as a reasonable balance sheet. The company’s revenues rose 14 percent over the past year, reflecting higher premiums.
For traders, shares have been range-bound for the past few months. The January 2024 $120 calls, last going for about $3.70, could see mid-double-digit gains as shares trend to the higher end of their range.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.