GameStop Won't Grow Your Wealth Like This Proven Business Can

Lousy stocks like GameStop (GME), AMC Entertainment (AMC), and BlackBerry (BB) have been getting tons of press...

"Short squeezes" organized by retail investors on social media site Reddit sent shares of these stocks soaring. These investors disregarded the conventional wisdom about how to value a stock, piling into companies that Wall Street considered failing.

As demand rose for these typically undesired stocks, their prices soared. Then investors who had bet against these companies also had to buy shares to close their short positions – which pushed shares even higher.

Things were so unusual that BlackBerry had to alert Canadian securities regulators that it had no answers for why its stock price had surged.

Seemingly, the retail investors were out to stick it to hedge funds who had taken large short positions in the stocks. This story is all over the financial media. And now, Congress is set to hold hearings over the moves in certain shares.

But today, we're not focusing on a struggling company that might soar triple digits in an hour based on the latest online fad. Instead, we're going to highlight the best business in the world for safe long-term gains...

We're talking about property & casualty (P&C) insurance.

P&C insurers are the only companies that enjoy a positive cost of capital. In every other business, companies must pay to take out a loan. But a good P&C insurer gets paid to hold other people's money.

Here's how it works...

The best P&C insurers can accurately estimate what they'll have to spend on claims, and they only accept business that adequately compensates them for the risk.

But there's more – float. Float is the money an insurance company has collected in premiums that it hasn't yet paid out in claims. While it holds this money, the insurance company invests it. It gets to keep all of the investment income in the form of interest, dividends, and capital gains.

This float doesn't cost the insurance company anything, as long as it doesn't end up paying out more in claims than the premiums it collects. That's why we call it the best business in the world.

And Travelers (NYSE: TRV) is one of the best of the bunch...

Dating back to 1853, Travelers is one of the oldest insurance companies in the U.S. It provides a wide range of commercial and personal P&C insurance products to businesses, governments, and individuals, including auto, home, and business insurance.

After more than 160 years in business, Travelers has built a stellar reputation. And its strength showed in its recent earnings report...

The company reported fourth-quarter core earnings per share ("EPS") of $4.91 versus Wall Street's $3.18 estimate. And revenue for the quarter was $8.4 billion, beating the expectation of $7.3 billion.

Travelers also boasted an excellent combined ratio, which measures an insurance company's ability to consistently record underwriting profits. Anything less than 100 means it collected more in premiums than it paid out in claims.

Travelers reported a combined ratio of 86.7% in the fourth quarter, down from 92.4% in the same quarter in 2019. And for the full year, Travelers reported a combined ratio of 95%, down from 96.5% in 2019. So Travelers has continued to improve its already excellent underwriting ability.

And 2020 marked the 11th time in the past 12 years that Travelers has turned an underwriting profit. That's an outstanding track record. And this was despite the severe impact of the pandemic. CEO Alan Schnitzer echoed this in his prepared remarks...

Our ability to deliver strong results over this past year in the face of an historic pandemic, a record number of PCS catastrophe events and historically low interest rates reflects the value of underwriting excellence.

As a result of the strong quarter, Travelers was able to reward its shareholders, buying back $201 million worth of its shares. And it still has more than $1 billion allocated for similar purchases, which drive up share prices by stimulating demand and increasing the value of each remaining share.

Travelers consistently ranks near the top of Stansberry Research's proprietary Insurance Value Monitor. This quarter's results (and those for all of 2020) are more proof that our ratings are spot-on.

Even better, the company is trading cheaply right now...

Travelers currently has a market cap of about $35 billion. So it's trading at a 58% discount to its float plus book value ($82.3 billion). When a top-10 company in the Insurance Value Monitor trades for a discount of more than 50% to its float plus its book value, we consider it a great buying opportunity.

Sometimes investing is simple.