Paul, I am not impressed if that list is the best they can come up with.
With respect to homebuilders, CTX was at a trailing P/E of 4 in early 2000, after the Fed's many rounds of rate increases. Now it is at 9 on boom-level earnings.
With respect to insurance companies, I would worry what will happen to returns on their substantial invested assets (an important part of earnings, I believe) from past interest rate reductions, let alone ones which would occur from any steps by the Fed to force down long term rates (their most likely next strategy to help the economy). For some companies, very low rates could actually be dangerous. Insurance companies can have contractually guaranteed rates built into policy pricing (e.g., life insurance and annuity) in excess of returns we could see, that could become a catastrophic problem. Guaranteed Investment Contracts became such a problem for a few insurance companies a number of years ago, in the very high rate days. However, those contracts never represented the proportion of assets that life insurance and annuity are. I would significantly underweight insurance companies now as I consider this issue as potentially dangerous and very tough to assess (and I am an actuary by training).
Note that Group Insurance companies covering primarily medical/dental, HMOs, and many Fire & Casualty carriers are less exposed to this issue, because they have a smaller proportion of invested assets relative to premium income, and typically have only one year rate guarantees.) |
