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Tickers in this Article: MET, PRU, AIG
Insurance company MetLife (NYSE:MET) has shown that it's holding up better in the face of the turbulent markets than previously thought. With the stock taking hits over the last few months, it may be oversold.

The company reported a drop in fourth quarter income due to extraordinary gains from a year earlier. Excluding those gains profit came in strong, and ahead of analyst expectations.

Not as Bad as Expected
The company reported net income of $1.08 billion ($1.44 per share) compared $3.83 billion ($4.95 per share) for the fourth quarter of 2006. That sounds terrible, but the quarter was much better than those numbers show. Three billion dollars of the gain in 2006 came from the sale of two Manhattan apartment complexes to Tishman Speyer, which should be excluded. Focusing on income from operations, which strip out one-time investment gains, profits rose 15% to $1.21 billion ($1.60 per share) from $1.05 billion ($1.36 per share) a year earlier. Consensus expectations were set for operating profits of $1.43 per share, so the quarter was quite good, and helped to rebuke some of the pessimism surrounding the stock. (To learn more, see Understanding The Income Statement.)

Why So Down?
There is this little thing called the subprime meltdown that some may have heard of, and MetLife has some exposure. This has helped to put pressure on the stock, which has fallen about 14% from the beginning of October due not only to a downturn in the overall market, but also concerns over the risk contained in the company's mortgage and bond portfolios. I think this can largely be put to rest.

Metlife's Chief Investment Officer, Steven Kandarian, spoke on the company's conference call stating that they were very comfortable with the portfolio. Of MetLife's $345 billion portfolio, only $2.2 billion, or less than 1%, is subprime mortgages. Better yet, there were no write-downs during the fourth quarter and realized losses of less than $1 million. It is very pleasing to hear of a mortgage portfolio with no write-downs, and losses of less than $1 million is nothing. (For more on the implosion of the mortgage-laden portfolios, see The Fuel That Fed The Subprime Meltdown.)

Market Insurance
With the markets acting unpredictably and the possibility of a recession looming, there are very few exceptions where you want to buy stocks with high price earnings multiples. Those stocks will be the most volatile and hardest to fall. That is why I like some of the insurers at this point, like Prudential Financial (NYSE:PRU) and American International Group (NYSE:AIG). Both have low P/E multiples of 9.3-times and 8.9-times respectively. But MetLife is by far the most compelling, currently trading at 6.5-times earnings. I think that the stock has been undervalued by the market, and with many of the stocks concerns set aside, it is a good buy. (To learn about this key valuation measure, see our P/E Ratio Tutorial.)

The Bottom Line
MetLife reported a solid fourth quarter with a 15% rise in operating profits from a year earlier. It soundly beat expectations, and put to rest many of the concerns regarding its mortgage exposure. The whole insurance area seems to be priced low right now, but I think the MetLife is a stand out in terms of value. It could make for a wise long-term investment.

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