Often overlooked in this age of investors looking for quick returns, insurance companies may well offer you a decent path to millionaire status over time.
Insurance is all about risk, making it one of the most inflation-proof industries out there. After all, as costs rise, premiums rise too, even if those premiums remain fairly consistent in terms of the percentage of the value of the assets insured.
In addition to this natural resilience to inflation, insurance companies have a rather unique ability to make money through investing other people's money. When you purchase insurance, your premium is combined with the premium of other policyholders and is available for the company to pay out in the event of claims. While in the hands of the insurance company, that money – known as float – can be invested by the insurance company, with the insurance company keeping any profits from that investment.
With these two strengths in mind, here are three insurance stocks that could make you a millionaire.
No. 1: A company that celebrates its rock-solid foundation
Prudential financial (NYSE: PRU) is so focused on maintaining a rock-solid financial foundation that it uses a real rock – the Rock of Gibraltar – as its company logo. It backs that up with a balance sheet holding more than $320 billion in bonds and total net equity of more than $28 billion.
Although the largest insurance companies are quite good at assessing risk, no one gets it right all the time. A strong balance sheet – like that of Prudential Financial – helps an insurer cover times when it has to pay out more claims than expected. That's the financial rock that goes along with the physical one and gives investors good reason to believe Prudential Financial has strong staying power.
After all, when it comes to building a $1 million nest egg, it helps if the companies you invest in have staying power. It's likely that you'll have to stay invested—and keep investing new money—for a fairly decent period of time to reach that high net worth.
No. 2: The master of investing the float
Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) is perhaps best known as the company led by billionaire investment guru Warren Buffett. When it comes to investing insurance money, Buffett has been doing it right for decades.
In addition to its successful insurance lines, Berkshire Hathaway owns companies such as BNSF Railroad, Duracell Batteries, Dairy Queen restaurants and NetJets private Aviation. Furthermore, under Buffett's leadership, Berkshire Hathaway has built a billion-dollar portfolio of major publicly traded companies.
All told, Berkshire Hathaway investors benefit from the benefits of the insurance industry plus its subsidiaries plus its investments in publicly traded companies. That combination provides a powerful foundation for investors looking for a potential path to millionaire status.
No. 3: An insurer that you may not recognize as such
CFS health (NYSE: CVS) is perhaps best known for its network of pharmacies, but also for its purchase of a health insurer EtnaInsurance is also a substantial driver of CVS Health's revenues. A recent one rough profit release tanked its shares, but that decline could be good news for investors with a longer-term horizon.
Despite the near-term challenges, analysts expect CVS to earn $7.40 per share in 2024 and $8.22 per share in 2025. The recent market price of $55.90 means it's available for about 7.6 times expected 2024 earnings and about 6.8 times expected 2025 earnings.
That's the kind of valuation you'd expect from a declining company, not one that's expected to have a fairly stable business over time. When you add the nearly 4.8% yield to what appears to be a value price, you get a company that looks capable of delivering decent returns for patient investors over time.
Start now
No matter how you invest, the journey to a million-dollar portfolio will take time. The sooner you start, the better your chances are of achieving that goal. So make today the day you decide whether one or more of these insurers deserve a place in your portfolio. Once you're well on your way to that seven-figure net worth, you'll be glad you took that first step.
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Chuck Saletta has positions in CVS Health and Prudential Financial and has the following options: long January 2026 $105 calls on Prudential Financial, short January 2026 $82.50 puts on Prudential Financial, short January 2026 $95 puts on Prudential Financial, and short June 2024 $120 calls on Prudential Financial . The Motley Fool holds positions in and recommends Berkshire Hathaway. The Motley Fool recommends CVS Health. The Motley Fool has one disclosure policy.
3 Insurance Stocks That Can Make You a Millionaire was originally published by The Motley Fool
