Picking a bottom in financial markets is near impossible. But finding good quality value picks in good and bad markets ought to be the goal of every investor.
Companies like Intact Financial (TSX:IFC) have been hit hard, as financials (lenders, insurance companies, mortgage trusts, etc.) have all seen valuations drop, for a few reasons. For insurance companies and banks, lower interest rates happen to be very negative for investors, for different reasons.
Insurance companies earn money on the float they receive via premiums, and typically invest their float to a great degree in fixed income products over time.
Lower interest rates mean lower returns for insurance companies over time. Lower interest rates also negatively affect the net interest margin lenders receive to lend out money (net interest margins are the spread between what it costs a lender to borrow and what a borrower is able to lend at). For companies like Intact Financial, these trends are obviously worrisome.
That said, Intact does have a very solid balance sheet which has been supported by strong earnings per share (EPS) growth in the past. Some EPS growth is still projected forward despite recent economic weakness, at the time of writing. Intact has been both a growth and defensive play for investors in the past, making this a company that I think could snap back nicely in an economic rebound.
Invest wisely, my friends.
