I’m in the process of increasing my life insurance. I’m taking advantage of my firm’s group life benefit to shore up my total face value to a number that will make my wife even happier should I head to the happy hunting ground sooner than expected. 

#-ad_banner-#As I’ve been navigating the underwriting odyssey, I’ve realized that I haven’t looked at some of the bigger life insurance stocks in a while. So I set out to correct that — and I was intrigued by what I found. 

Many investors have fallen out of love with large insurance company stocks over the past five years (if they were ever in love to begin with). The two main reasons are the two motivations that drive almost all behavior in financial markets: fear and greed. 

From 2008 to 2011, fear drove the bus mainly due to the fallout from the global financial crises in U.S and European markets. Investors worried that the investment portfolios of the big insurers contained huge quantities of securities that were in danger of deep devaluation or even default due to the turmoil and depressive economic environment. The natural reaction was to sell and then avoid. This chart of MetLife (NYSE: MET) illustrates this point:

Since I profiled MetLife three years ago, the stock has returned over 20% annually, slightly outperforming the S&P 500. Despite the move, this stock and a couple of its peers are still compelling investment ideas at bargain-basement prices. 

This is where greed kicks in. Because many of the markets’ high-fliers have given up ground, it’s time for investors to look at the value these names offer.

MetLife (NYSE: MET )

With Charles Schultz’s iconic Peanuts characters as its pitchmen, MetLife is one the largest life insurance names out there. And despite a market capitalization approaching $60 billion and total assets of $885 billion, Met is one of the cheapest life insurance stocks on my radar screen. Shares trade near $51 with a forward price-to-earnings (P/E) multiple of just 9 — an 8% discount to MetLife’s average forward P/E over the past 20 years and a 10% discount to the life insurance sector. The stock is also incredibly cheap judging by the recent growth in MetLife’s earnings per share (EPS), which jumped to $2.91 last year from $1.08 in 2012, an increase of 169%. The 2014 forecast is even stronger at an estimated $5.64 per share, a further increase of 93%. Yeah, I’ll pay 9 times for that type of growth all day long. MetLife also offers a 2.7% dividend yield and trades for pretty darn close to its tangible book value.

Manulife Financial (NYSE: MFC )

With its roots in the old Manufacturers Life, Canada-domiciled Manulife Financial has evolved into one of the world’s biggest life insurers since merging with John Hancock in 2004. Covering North America and Asia, the company offers a suite of insurance and wealth management products. In addition to the strong John Hancock brand, the balance sheet is rock-solid. Some highlights include no debt and a 2.6% dividend yield with a comfortable 33% dividend payout ratio. Most significantly, Manulife’s assets under management grew significantly last year, to $599 billion, an increase of 13% from the year before. The most interesting thing I’ve found about the stock is that it’s trading about where it was 10 years ago near $18, with a forward P/E of 12.3. This looks incredibly cheap for a company that is capable of increasing its asset base in the mid-teens.

Hartford Financial Services Group (NYSE: HIG )

After shedding its individual life, annuity and retirement planning business units at the urging of activist hedge fund manager John Paulson, Hartford Financial Services Group has emerged as a lean, focused contender. The company now concentrates solely on its property and casualty unit, its group insurance benefits business and its well-respected mutual fund complex. The turnaround is noticeable: Hartford went from a yearly loss of $0.17 a share in 2012 to a profit of $0.62 a share in 2013. The forecast for 2014 is even more encouraging, with full-year EPS expected to come in at $3.84, a 519% improvement. This potential makes the stock’s current valuation extremely compelling. Shares trade near $34 with a forward P/E of just 9.6 and a dividend yield of 1.7%. Even more attractive is the low price-to-book multiple of just 0.8 times its tangible book value.

Risks to Consider: The biggest macro risk to all three companies is the stability of financial markets, namely the bond market. Rising interest rates can play havoc on an insurance company’s investment account because rising yields will erode principal value. Hopefully, management is coordinated enough to take investment profits when the opportunity presents itself and purchase securities at attractive discounts for future portfolio gains and increased yields.

Action to Take –> Collectively, these stocks have a low forward P/E of just 10.6 and a blended dividend yield of 2.4%. Clearly, these stocks are extremely cheap based on EPS and asset growth. If all three can continue to execute and the interest rate environment stays about where it is, total returns of 35% in 12 to 18 months are achievable.

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