Profitable low-risk stocks

Key points:

  • Progressive is one of America’s fastest growing insurance companies
  • Every year since 2009, it shows a positive annual profit.
  • It has an extremely low k-ta beta, which means lower volatility than the market as a whole.

Every investment portfolio should have room for stocks with explosive growth potential. An investor can take the risk of investing a little money in this kind of paper. Of course, they will not be without questions, and along with the opportunity to bring significant profits, they will carry a sufficient degree of risk. And to compensate for this risk, reliable low-risk securities that bring stable profits will serve.

One such low-risk, stable-earnings stock is Progressive (NYSE: PGR). This insurance company has consistently performed above the S&P 500 over the same period over the past decade (411% versus 226%).

Progressive: One of the fastest growing insurance companies in America. It should be noted that she traditionally runs a large-scale advertising campaign. Their ads are broadcast on national television almost 24 hours a day, 7 days a week.

American football star Baker Mayfield (Cleveland Browns) featured in the 2019 Progressive Insurance ad campaign:


It is possible that this kind of proactive attitude towards advertising by marketers over the years has helped Progressive gain market share (not without some really strong managers, of course). In 2010, Progressive was the ninth largest insurance company in the United States with a market share of approximately 2.9%. In 2021, Progressive will become the third largest with a market share of around 5.7%. Few (if any) large insurance companies have grown faster in the past few years.

Since 2009, the share price has shown positive annual growth for 12 consecutive years. Over the past 10 years, through June 30, 2021, Progressive’s average annualized return was around 19%, well above the S&P 500. The share price has remained relatively flat this year.

Why did Progressive manage to win such a large market share? Commercials and marketing could certainly help with this, but the main reason is effective management.

Underwriting drives growth

Over the past five years, Progressive’s revenue has grown 15% annually and net income has grown 35% annually. The main reason for this is that the company has done a great job of underwriting lucrative insurance policies. This is reflected in the excellent combined ratio of the company.

The combined ratio is a key indicator for the insurance industry. It measures the amount paid in relation to the premiums received. If the combined ratio is below 100%, then the company receives more premiums than it pays on claims. If it exceeds 100%, then the company pays more than it receives. The lower the combined ratio, the more profitable the company is usually.

If we look at the combined Progressive ratio, we see that since 2000 it has not exceeded 100%. This is indisputable evidence of skillful underwriting. In May 2021, the rate was 93.1% compared to 93.7% a year earlier. At the end of the first quarter, it was 89.3%, and at the end of 2020 – 87.7%. This has certainly contributed to the consistent growth of Progressive’s earnings.

In addition, Progressive was one of the earliest developers of telematics (the use of technology to determine driving habits), and this also helped the company achieve excellent results in underwriting.

Low Risk Winner

Progressive has a long history of growth and the benefits that have allowed it to gain market share remain in place. While new players are emerging in the industry that rely more heavily on telematics and artificial intelligence, it remains to be seen how profitable they will become. And Progressive, based on its track record, has every chance of adapting appropriately to new conditions.

Despite stable earnings, Progressive remains undervalued, with a final price-to-earnings (p / e) ratio of just 7. And they have an extremely low beta of 0.46 (averaged over the past five years).

Beta is a measure of the volatility of a stock. A beta coefficient above one means that the stock price is more volatile than the benchmark **, while a beta coefficient below one indicates that the share price is less volatile. A Beta value of 0.46 (well below one) suggests that Progressive is performing as stable as possible, with little volatility relative to the S&P 500.

So, if you are looking for profitable low-risk stocks then Progressive is a great choice.

** The volatility of the market as a whole, expressed in terms of a certain stock index, is usually taken as a reference value. For US stocks, comparisons are usually made with the S&P 500.

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