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Forget Root Inc., Buy These 3 Insurance Stocks Instead


Forget Root Inc., Buy These 3 Insurance Stocks Instead

Personal insurance provider Root (ROOT) is suffering depressed profit margins due to rising costs and intense competition. However, the global insurance industry is recovering, bolstered by rising demand. Thus, fundamentally sound insurance companies Loews Corporation (NYSE:L), AXIS Capital Holdings (AXS), and Stewart Information Services (NYSE:STC) could be better bets now. Read on.Technology-based personal insurance company Root, Inc. (ROOT) has been facing operational challenges due to rising costs and intense competition. Despite a 19.1% rise in direct earned premiums in its fiscal second quarter (ended June 30), the company failed to generate profits. Its adjusted gross loss came in at $4 million, down from a $16 million gross profit generated in the prior-year quarter. ROOT’s financials are expected to remain under pressure in the near term. Analysts expect its revenues to decline 59.7% year-over-year to $65.90 million in the third quarter (ending September 2021), while its EPS is expected to remain negative until at least 2022. The stock has lost 62.9% in price year-to-date.

However, the insurance industry has been recovering from pandemic-driven disruptions. And a rising demand for customized assistance should drive the specialty insurance industry’s growth in the long run. Indeed, the global specialty insurance market is expected to grow at a 9.3% CAGR over the next nine years to $178.52 billion by 2030. Moreover, because analysts and industry experts predict a potential tapering of monetary policy ahead of Fed’s proposed timeline, the insurance industry’s profit margins are likely to improve.

Given this backdrop, we think insurance stocks Loews Corporation (L), AXIS Capital Holdings Limited (AXS), and Stewart Information Services Corporation (STC), with solid profit margins and rosy growth prospects, are better bets than ROOT now.

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