Does Allstate Corp (NYSE:ALL) still have you in good hands or is its combination of dampened earnings and exposure to mortgage-backed securities a significant drag on its future? Investors will want to know what Allstate's prospects might be going forward, as the insurers have been part of the battered and maligned financials.

World's Greatest Investors

Passed Over
When the markets opened this week the Dow had replaced Citigroup (NYSE:C) with Travelers Companies Inc (NYSE:TRV), though some might have wondered why Allstate wasn't chosen. Travelers, though its earnings are down as its income was $2.9 billion last year after a previous year's earnings of $4.6 billion, is just the kind of solid, unspectacular company that the inscrutable Dow deciders wish to include in their index.

As for Allstate, it lost $274 million in the first quarter due to charges, but the concern on its otherwise solid profile is the $6.9 billion of commercial mortgage-backed securities and $9.7 billion it holds in commercial mortgages. No one is suggesting these investments are automatically going to blow up like the American International Group (NYSE:AIG) mess or the meltdowns of earlier phases of the overall credit crisis, but these mortgages are holdings that call for a watchful eye. Some institutional investors, such as BlackRock (NYSE:BLK), are very negative on Allstate stock. (To learn more, check out our Credit Crisis Tutorial.)

The Good Hands Part
Allstate's still got a lot going for it. It's usually a consistent, solid moneymaker; it is well positioned in auto, homeowners, life insurance and finance via Allstate Financial, so it is more diversified than, say, auto specialist and competitor Progressive Corp (NYSE:PGR), which seems to be stuck in neutral right now.

Allstate's stock, which fell from $60 to $14 in the last year, has bounced back to $25 a share with some on Wall Street looking for much more. Its recent two-part debt offering garnered $1 billion and it refused TARP money, as did Prudential (NYSE:PRU), along with some of the other insurers. Prudential's stock has risen handsomely this year, which could be a preview of a move for Allstate shares.

Painted With the Same Brush
Allstate has been dipped in the same paint as AIG and colored awful just by association because it is an insurer. But Allstate, along with Prudential and many others, is nothing like AIG. The AIG credit exposure was wider, open-ended and massive by comparison. Again, the mortgage issues with Allstate are not to be ignored, but perhaps now investors are getting back to discriminating between (as with banks) which financials and which insurers are well-run and which aren't. In the auto area GEICO, available through Berkshire Hathaway (NYSE:BRK.A) is well run, for example, where Progressive lags right now.

Don't Just Jump In But...
Allstate, unlike weaker insurers, should be able to withstand its mad foray into mortgages and live to profit another day. Investors should be cautious, watch how the Allstate mortgage holdings are wound down, and then be ready to invest in what will resume being a traditional steady-grower, an unspectacular but solid moneymaker. (For a deeper look, check out The Industry Handbook: The Insurance Industry.)

Related Articles
  1. Stock Analysis

    How Does Oscar Work and Make Money?

    Learn how startup Oscar is taking on the health insurance giants by offering customers free doctor's visits, generic drugs and 24-hour phone access to doctors.
  2. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  3. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  4. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  5. Insurance

    Life vs. Health Insurance: Choosing What to Buy

    When you only buy the coverage you truly need, the debate over medical insurance vs. life insurance might just be one you can avoid.
  6. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  7. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  8. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  9. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  10. Professionals

    How to Help Clients Navigate Open Enrollment

    With companies trying to pass on more costs to employees, making the right choices during open enrollment is more important than ever.
  1. Are Cafeteria plans exempt from Social Security?

    Typically, qualified benefits offered through cafeteria plans are exempt from Social Security taxes. However, certain types ... Read Full Answer >>
  2. What are the risks of annuities in a recession?

    Annuities come in several forms, the two most common being fixed annuities and variable annuities. During a recession, variable ... Read Full Answer >>
  3. Can your insurance company cancel your policy without notice?

    In most states, an insurance company must give a policyholder written notice of at least 30 days before canceling a policy. ... Read Full Answer >>
  4. How do I calculate insurance premium tax?

    In the United States, consumers do not pay any additional tax on health insurance premiums. However, your insurance premiums ... Read Full Answer >>
  5. Can your insurance company drug test you?

    Insurance companies have the right to require drug tests for health insurance and life insurance policies, but not all of ... Read Full Answer >>
  6. What is the difference between a peril and a hazard?

    The two related terms "peril" and "hazard" are often used in reference to the insurance industry. Essentially, a peril is ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!