Last week my Advisory led off with a question from a man
concerned about "building a Family Legacy For Future
One of my readers, Bradley K., was kind enough to send this
"Tell the reader who is worried about estate building to buy life
insurance. Proceeds are not income taxable, &
policy ownership can be arranged to avoid estate taxes too.
Spendthrift provisions can be arranged thru the use of life
"Whole Life is not subject to the vagaries of the market,
either. Don't buy Universal Life or Variable Life for this
For the record, Bradley is a Chartered Life Underwriter, which
means he's completed five core courses and three
elective courses, and successfully passed the corresponding eight
two-hour, 100-question examinations.
These are the core courses:
• Fundamentals of insurance planning
• Life insurance law
• Individual life insurance
• Estate planning
• Planning for business owners
And these are the electives:
• Financial planning
• Health insurance
• Income taxation
• Group benefits
• Retirement planning
• Investment planning
If you determine that life insurance should be part of your
estate plan, then I have no doubt that Bradley or a more local
CLU can satisfy.
Just remember this.
Every time you elect to buy "security," you forego future
So the real question you must ask is, "How much opportunity am I
willing to give up to purchase security?"
And then you must answer the question.
Whatever you answer is correct for you. And whatever I
answer is correct for me.
As a man who's spent most of my professional career recommending
aggressive investment in common stocks-aided substantially by
accurate market timing-I feel very comfortable buying less
security and retaining more opportunity.
But most people want more security.
And it's that desire to buy security that has made the insurance
industry a fine place to invest over the decades.
American International Group (
was a spectacular investment until it fell apart, while
, to name a few, have been wonderful conservative,
Yes, the industry suffered in the recession of 2008-2009, as
asset values shrank all over, but insurance stocks look great
In fact, I've got two attractive insurance stocks to tell you
is the first, well known for its commercials featuring a
duck. The name is an acronym of American Family Life
Assurance Company. The stock pays a dividend of 2.2%.
Revenues have grown every year of the past decade and grew 10% in
2009. This year, growth has ramped up; it hit 19% in the
third quarter, while earnings grew at 16%.
But it's not growth that makes Aflac attractive, it's valuation.
In fact, Roy Ward, editor of Cabot Benjamin Graham Value Letter,
highlighted the stock back in August, when it was trading at 49.
Roy wrote, "Aflac is the world's largest supplemental cancer
insurance provider, deriving 75% of its business from
Japan. Aflac's U.S. sales are lagging, but the company's
focus on new products and successful promotions in Japan is
producing strong performance. Sales increased 13% and EPS soared
80% during the past 12-month period. We forecast sales and
earnings per share growth of 7% and 16% respectively during the
next 12 months. Growth could receive an additional boost if U.S.
sales improve noticeably. AFL shares now sell at 9.0 times our
forward 12-month EPS forecast. We expect the stock price to
increase to our Minimum Sell Price of 90.14 within two to three
In the four months since then, AFL is up 13%, and Roy has raised
his Minimum Sell Price to 108.85, which would be a fat 95% profit
from here. But you don't want to just jump in and buy at
any time and price. A key concept of the Cabot Benjamin
Graham Value Letter's system is the concept of Margin of
Safety. And how do you get Margin of Safety? By
buying low! So you really need to know Roy's Maximum Buy
Price, and if you
, you can learn more about that.
My second recommendation is another Cabot Benjamin Graham Value
Letter selection. It's
Reinsurance Group of America (RGA)
, which yields 0.9%. Revenues grew every year of the past
decade until 2008,when they slipped 1%. But they roared
back in 2009 for a growth rate of 24%, and this year revenues
have averaged 18% growth, while earnings have averaged 12%
The stock was featured by Cabot Benjamin Graham Value Letter back
in March, when Roy wrote this:
"Reinsurance Group is the second largest provider of life
reinsurance in the U.S.
The company offers life, annuity, critical care and group
reinsurance, and also guarantees insurance contracts for
insurance and other financial companies. Reinsurance Group sells
its products in 26 countries around the world, and acquired
ReliaStar Life Insurance in January 2010. We believe strong
growth from RGA's international operations as well as a boost
from the ReliaStar purchase will boost EPS by 14% in 2010. The
company's shares are undervalued at 7.2 times current EPS with a
1.0% dividend yield. RGA shares sell at 0.78 times current book
value. The balance sheet is strong, and the Standard & Poor's
Quality Rank is A-. We fully expect RGA's stock price to increase
to our Minimum Sell Price of 70.69 during the next one to two
Back when Roy wrote that, the stock was selling at 48. Now
it's 53, for a solid profit of 10%. And the Minimum Sell
Price has been increased to 74.02, which would be a tidy 41%
profit from here. But as with Aflac, what you really need
to know to buy with a Margin of Safety is Roy's Maximum Buy
Price, and you can get that by
Moving on, it gives me great pleasure to announce that this week
we'll be publishing the 1,000th issue of Cabot Market Letter.
Interestingly, when my father published the first issue of Cabot
Market Letter back in 1970, he didn't label it #1; he labeled it
#201, so readers wouldn't think he was just getting
started! So this week's issue is actually labeled #1,200.
But while the issue numbers keep changing, some things remain
Cabot Market Letter remains a great place to find fast-growing
new growth stocks. Recent issues have highlighted companies
in the fields of 3-D video technology, uranium and Internet
Cabot Market Letter remains a great place to get first-rate
market timing. Its timing advice has beaten the S&P 500
by 48% over the past two years, according to Timer Digest.
And Cabot Market Letter remains a great place to get advice on
making yourself a better investor. Every issue contains not
only basic buy-hold-sell advice but explains the reasoning behind
the advice. In fact, we pay particular attention to the
human factor (that's you) involved in successful investing.
I'm confident there are hundreds more issues of Cabot Market
Letter to be published in the years ahead, and if you're already
one of the thousands of readers who depend on Cabot Market Letter
for investment guidance, I look forward to serving you.
And if you've never tried
Cabot Market Letter
, now is a great time to take a look!
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory