Assuring Wealth
In this edition of the Smart Investor newsletter, we examine the largest public life insurance company in the United States. But first, let’s dive into the latest Portfolio news and updates.
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Portfolio Updates
❖ Microsoft (MSFT) said it will invest $80 billion in fiscal year 2025 (ending on June 30, 2025) to expand its AI data center capacity. More than half of this capex funding will be allocated to the construction of U.S. data centers.
Several leading Wall Street analysts have upgraded their price targets on MSFT recently, forecasting that the technology giant will be one of the main beneficiaries from the AI investment surge. Furthermore, analysts from Evercore ISI and Bernstein expect an additional boost to MSFT’s performance to arrive from the significant acceleration in Azure revenue growth in the first half of calendar 2025.
❖ AI-related stocks were strongly lifted by Microsoft’s capex announcement, which further confirmed that AI boom and the surge in demand for the supporting hardware and software are in the early stages of acceleration. The Taiwanese electronics giant Foxconn announced record quarterly revenues, attributing the surge to AI server demand. Shares of Taiwan Semiconductor Manufacturing (TSM) reached an all-time high on the news.
In addition, several companies unveiled new products and services, adding to a strong resurgence in investor optimism towards AI. Thus, Dell Technologies (DELL) announced of a new lineup of AI-powered PCs with AMD-made processors, while Alphabet’s (GOOGL) Google unveiled its latest Google TV OS with the Gemini AI assistant. Nvidia’s CEO Jensen Huang spurred excitement among analysts and investors at the high-profile Consumer Electronics Show, showcasing his company’s inroads in AI agents, self-driving cars, and robotics, along with new gaming chips.
❖ Dell Technologies (DELL) was named by UBS analysts as their top large cap pick in U.S. Enterprise Hardware and Networking for 2025.
❖ Uber Technologies (UBER) saw its stock boosted by several catalysts, beginning with the announcement of an accelerated buyback of $1.5 billion in stock from Bank of America in line with Uber’s ongoing $7 billion share repurchase authorization.
The announcement led to a jump in shares, which added to a recent positive trend sparked by several analysts positively opining on the stock. Thus, the ride-hailing leader was added to the BofA Securities “Growth 10” list for January 2025, with the brokerage firm envisioning five-year EPS growth of over 48%. In addition, Uber was added to Wedbush’s “Best Ideas” list and to Goldman Sachs’ “U.S. Conviction” list.
Moreover, Uber and Nvidia on Monday unveiled a strategic partnership aimed at advancing AI-powered autonomous vehicle (AV) technology. The collaboration will leverage a combination of Uber’s vast source of mobility data with Nvidia’s state-of-the-art AI platforms.
❖ According to media reports, Amazon.com (AMZN) is considering purchasing Lyft. The ridesharing company has fallen far behind in autonomous-taxi race to its larger rival Uber, which came prepared to the shift to AVs by teaming up with Alphabet’s Waymo to offer self-driving rides on its app. If AMZN enters the scene with by Lyft acquisition, it could compete with Waymo, which announced in October that it was completing more than 100,000 paid rides for passengers per week.
In other company news, Amazon and Qualcomm announced plans to collaborate on developing AI-powered in-vehicle technologies. The companies demonstrated the potential of a Qualcomm’s Snapdragon Digital Chassis-enabled cloud-native development powered by Amazon’s AWS and announced a long-term commitment to provide a comprehensive development infrastructure and tools aimed at helping the automotive industry’s transition to being software-defined.
Several top Wall Street analysts raised their price targets on Amazon in the past several days, with Bank of America and Wedbush listing it as their top picks for 2025.
❖ IBM (IBM) and GlobalFoundries have agreed to settle all legal disputes between them. This includes lawsuits about broken contracts and claims of sharing confidential information that originated from GlobalFoundries’ acquisition of IBM’s semiconductor manufacturing facilities in 2015. The settlement is positive for both companies, allowing them to explore ways to collaborate, adding to their ability to capitalize on the accelerating demand for advanced chips through combining IBM’s strong research foundation with GlobalFoundries’ production capacity.
❖ Beyond tech stocks, Smart Portfolio’s financials have also seen some analyst action recently. Thus, several Wall Street brokerages raised their price targets on Interactive Brokers (IBKR), while assigning or confirming a “Buy” rating. These actions follow IBKR’s report that its December DARTs (Daily Average Revenue Trades, a key metric for IBKR) surged by 66% YoY, with several other metrics also registering a strong increase.
Visa (V) has received a “Buy” rating from Wells Fargo with a PT implying an upside of over 15%. Meanwhile, KKR & Co. (KKR) was awarded a PT raise from Wolfe Research, with the new target implying an upside of nearly 28% on top of the past 12-months surge of over 77%. Reinsurance Group (RGA) has seen mixed analyst moves, with Barclays marginally lowering their PT due to “tougher part of the underwriting cycle for property coverage,” while JPMorgan slightly raised the price target on the stock.
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Portfolio Stocks Under Review
❖ Arch Capital Group (ACGL) remains under review as we witness contrasting developments around the stock. As a reminder, we placed it in the “review” bracket following the stock’s strong decline from its peak in October, which was likely caused by pressures on the larger insurance-stock universe and profit taking following its strong run this year through mid-October, when it reached an all-time high.
In positive developments for ACGL stock, the company renewed its $1 billion share repurchase program, allowing for buybacks through open market or privately negotiated transactions. As of the end of Q3 2024, the full $1 billion remained available, with no common shares repurchased in Q4 2024.
Additionally, Moody’s upgraded Arch Capital Group’s credit rating to “A3” from “Baa1” and also raised the company’s insurance financial strength (IFS) ratings. According to the agency, the upgrades reflect ACGL’s robust profitability metrics and solid risk-adjusted capitalization and are underpinned by the firm’s improved market position and scale. These upgrades indicate Moody’s increased confidence in Arch Capital’s financial strength and operational performance.
Analysts from leading Wall Street firms rate Arch Capital a “Buy” with an average price target implying an upside of over 27% in the next 12 months. However, Jefferies analysts reduced ACGL’s price target, citing caution on commercial line insurance due to less favorable conditions and uncertainties in that segment. Still, the firm maintained a “Buy” rating on ACGL, reflecting confidence in the company’s ability to capitalize on improving trends in personal lines and its strong overall position in the property and casualty insurance sector.
In addition, in the past week, the firm’s price targets were lowered by Barclays and JPMorgan. The former cut its PT from $120 to $100 due to difficulties associated with the property and casualty insurers’ underwriting cycle. Meanwhile, JPM analysts marginally lowered their PT on ACGL as they view current valuation and optimistic earnings expectations as limiting the stock’s potential upside. We plan to continue watching the stock closely, ready to sell if there is a hint of trouble.
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❖ GE Aerospace (GE) remains under review. One of the Smart Portfolio’s longest-held stocks, it had been our star performer through mid-October, when it reached an all-time high. Since then, the stock has been under pressure, both from the general Industrial sector underperformance over that period, and due to investor worries – based on market dynamics and company-specific issues like supply chain constraints – that GE shares may have outrun their fundamentals.
Trump’s plans to slash government spending have weighed on firms like GE. However, GE’s low exposure to the U.S. government’s defense spending should alleviate these concerns. The company derives about 16% of its revenues from defense-related activities, with the lion’s share of the total – over 70% – coming from services, a recurring, resilient, and higher-margin source of revenue.
Leading Wall Street firms rate GE Aerospace a “Strong Buy” with an average price target implying an upside of over 22% in the next 12 months. According to analysts, recent worries about aftermarket services growth are overblown, and GE remains fundamentally strong with robust prospects in both the aftermarket and OE segments. The company’s strong performance in Q3 and a hike to its full-year EPS and cash flow guidance are a testament to this strength.
Deutsche Bank analysts have recently lowered their price target for GE from $235 to $228, maintaining a “Buy” rating on the shares. Despite the PT reduction, the firm maintained the positive outlook for the sector, noting that GE Aerospace’s strategic positioning suggests potential for continued growth.
We believe that GE remains a solid investment, which took a hit along with the broader industry and was impacted by investor anxiety as a result of the stock’s price appreciation but has recently displayed a strong recovery trend. Still, we plan to follow company news closely going forward to understand whether the sentiment has improved.
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Portfolio Earnings and Dividend Calendar
❖ The Q4 2024 earnings season is yet to begin, and no Smart Portfolio companies are scheduled to release their quarterly results until mid-January.
❖ The ex-dividend date for Oracle (ORCL) is January 9th, while for Intuit (INTU) it is January 10th.
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New Buy: MetLife (MET)
MetLife, Inc. is the holding corporation for the Metropolitan Life Insurance Company, better known as MetLife, and its affiliates. MetLife is among the largest global providers of insurance, annuities, and employee benefit programs, serving millions of customers in over 40 countries and holding leading market positions in the U.S., Asia, Latin America, Europe, and the Middle East.
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History Of Expanding Horizons
MetLife, Inc. traces its origins to 1868, when the Metropolitan Life Insurance Company was founded in New York City, initially offering individual life insurance policies. Over the decades, MetLife diversified its offerings and expanded globally, becoming a trusted provider of insurance, annuities, and employee benefits.
In 1999, MetLife transitioned from a mutual company to a publicly traded corporation through demutualization, raising over $2.5 billion in its IPO. Major acquisitions, such as Alico from AIG in 2010, significantly expanded MET’s global reach, adding operations across dozens of countries and strengthening its footprint in key regions like Asia, the Middle East, and Latin America.
Strategic moves in the past decade have driven diversification and growth. The acquisition of Logan Circle Partners in 2017 bolstered its asset management business, while the 2020 purchases of PetFirst Healthcare and Versant Health expanded offerings in pet and vision care, adding approximately 35 million vision members. In December 2024, MetLife announced its pending acquisition of PineBridge Investments, expected to significantly grow assets under management and enhance investment capabilities.
Today, with a market cap of $57.4 billion and annual revenues of $71.3 billion (TTM), MetLife ranks #60 on the Fortune 500 list. It is a dominant player in the U.S. insurance market, leading in direct premiums across various life and annuity insurance categories. MetLife also stands as one of the largest providers of employee benefits, serving 94 of the Fortune 100 companies in the U.S.
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Business/Life Balance
MetLife’s business model is built on providing insurance, annuities, and employee benefits to millions of customers worldwide, generating revenue through premium collection, investment income, and fee-based services. The company’s diversified offerings, spanning individual life insurance, retirement solutions, and group benefits, ensure multiple revenue streams and reduce reliance on any single product line.
A cornerstone of MET’s profitability is its ability to pool risk across a broad customer base. By collecting premiums from policyholders, the company invests these funds in a portfolio of fixed-income securities, real estate, and alternative investments. This strategy not only ensures capital availability for claims but also generates significant investment income, a key driver of MetLife’s financial performance.
MetLife’s scale further enhances its cost-efficiency and competitive edge. As one of the largest insurance providers in the U.S., it benefits from economies of scale in underwriting, claims processing, and product distribution. Its leadership in employee benefits creates a stable and recurring revenue base. MetLife’s balanced approach – combining risk management, investment expertise, and operational efficiency – allows it to maintain strong margins and weather economic uncertainties.
The company also adapts to changing consumer needs through product innovation and technology adoption. Its Digital Ventures and Digital Accelerator programs drive InsurTech innovation, while investments in AI and data analytics improve claims processing, underwriting accuracy, and customer engagement. These advancements streamline operations, reduce expenses, and reinforce MetLife’s position as a leader in delivering modern financial services.
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Ensuring Shareholder Returns
MetLife showcases solid financial health, driven by its diversified revenue streams, disciplined risk management, and robust investment portfolio. The company maintains a strong balance sheet, with a manageable debt-to-equity ratio and steady investment income from its well-diversified asset base. MET’s low financial risk is underlined by its high credit ratings: “A” at Fitch, “A-” at S&P, and “A3” at Moody’s.
MetLife’s capital efficiency metrics, including ROE of 15.1% (3Q YTD 2024), are competitive within the insurance sector, reflecting effective operational management and capital deployment strategies. Over the past three years, MET has achieved a CAGR of nearly 5% in total adjusted earnings and 6% in spread balances, driven by its focus on higher-margin, capital-light businesses. Net investment income continues to be a vital contributor to profitability, complemented by ~$144 billion in liability inflows across its Retirement and Income Solutions segment over the past three years.
MetLife generates substantial free cash flow (FCF), enabling it to fund strategic initiatives, shareholder returns, and growth opportunities. Between 2020 and 3Q YTD 2024, MetLife returned approximately $22 billion to shareholders, including $14.7 billion in share buybacks and $7.6 billion in dividends. The company maintains a balanced capital allocation approach, prioritizing investments in growth, shareholder dividends, and share repurchases.
MET is committed to delivering shareholder value through consistent dividend growth. In 2024, the company increased its dividend by 5%, marking over a decade of annual increases. Its current dividend yield of approximately 2.62% is much higher than average in the Financial sector, supported by a conservative payout ratio that ensures sustainability. Additionally, MetLife’s total shareholder return (TSR) of ~100% over the past five years outpaces 68% of S&P 500 companies, highlighting its commitment to maximizing shareholder value.
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Doubling Down on Growth
MetLife’s stock, a component of the S&P 500 index, reached an all-time high in November before retreating approximately 10% due to profit-taking and broader market turbulence. However, shares have rebounded since mid-December as leading Wall Street analysts provided optimistic outlooks. In January, Barclays and JPMorgan raised their price targets for MET, with the top analyst consensus now implying nearly 18% upside over the next 12 months.
Driving this optimism is MetLife’s “New Frontier” strategic plan, unveiled in December 2024. Building on the success of its previous five-year program focused on resilience, the updated strategy prioritizes growth. MetLife aims to achieve double-digit EPS growth over the next five years by concentrating investments in key areas such as group benefits and asset management.
An integral component of this strategy is the launch of Chariot Re, a new reinsurance venture formed in partnership with General Atlantic and supported by investments from Chubb and others. Expected to launch in the first half of 2025, Chariot Re aligns with MET’s goal of driving growth and creating value without taking principal risk.
Despite its recent recovery, MetLife’s stock remains attractively priced, trading at a ~15% discount to average Financial sector multiples and positioned mid-range among industry peers. Furthermore, based on discounted future cash flows, MET appears undervalued by ~40%, offering a compelling combination of deep value, growth potential, and robust total return prospects.
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Investing Takeaway
MetLife Inc. is a global leader in insurance, annuities, and employee benefits, serving millions of customers across 40+ countries. Its diversified business model, underpinned by risk management and robust investment income, drives consistent profitability and growth. Strategic acquisitions and technological investments, including AI and InsurTech, enhance operational efficiency and customer engagement. The “New Frontier” strategy aims for double-digit EPS growth by prioritizing high-margin segments. MetLife’s strong financial health, steady free cash flow, and a growing dividend yield, underscores its shareholder focus. With a compelling valuation and resilient business model, MetLife offers attractive long-term investment potential.
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New Sell 1: NICE Ltd. (NICE)
NICE Ltd. provides cloud-based software solutions for customer engagement and financial crime prevention. NICE’s services include advanced analytics, AI-driven customer insights, and risk management solutions designed for the customer service and compliance markets.
The company, boasting a stellar balance sheet and churning out stable revenues, continues to surpass analysts’ earnings projections. Analyst expect it to be one of the winners in AI and cloud spheres over the long term, thanks to NICE’s advanced cloud-based services, extensive collaborations with technology majors, and solutions and SaaS business model supporting rapid innovation.
Overall, the average price target from leading Wall Street analysts suggests an upside of over 48% for NICE stock within the next 12 months. Morgan Stanley has highlighted NICE as one of its top picks in the communication software space. The firm recently raised its price target on NICE, citing the anticipated reacceleration of industry stocks. Morgan Stanley believes this environment favors companies with “accelerating growth stories or exceptional free cash flow support.” NICE’s strong fundamentals and growth prospects position it well to benefit from these trends.
However, NICE’s stock has been stuck in a downward loop since Jefferies analysts downgraded it from “Buy” to “Hold” in mid-December, lowering their price target by $15. According to Jefferies, consensus estimates for NICE’s cloud revenue growth in 2025 are overly optimistic, particularly given the increasing competition in the sector. Additionally, the upcoming CEO transition at NICE introduces potential uncertainties, with analysts noting that the leadership change could impact the company’s strategic direction and execution.
The fact that investors continue to view the stock in a negative light despite its strong fundamentals and analyst support indicates the possibility of continued downward momentum. In the near term, negative investor sentiment may outweigh NICE’s strong long-term growth potential. We plan to revisit this corporate software solutions stalwart in the future, but for now we believe it is prudent to sell the stock.
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New Sell 2: Verizon Communications (VZ)
Verizon Communications, Inc. is a leading American telecommunications company providing wireless and wireline communication services, as well as technology, information, and entertainment products and services to consumers, businesses, and governmental entities worldwide.
VZ is the largest wireless communications provider in the U.S. and a clear market leader in the field but continues to invest in long-term growth drivers. Thus, its acquisition of Frontier Communications, announced in September and pending regulatory approval, is expected to be strongly accretive to earnings through the addition of over 2 million fiber-optic connections across 25 states to VZ’s networks. However, anticipated benefits from the acquisition are not expected to fully materialize until early 2026, delaying a key growth driver.
Meanwhile, Verizon’s quarterly performance has been improving, with the company beating analyst EPS estimates in seven out of eight recent quarters (i.e., registering smaller-than-expected declines). While its business segment continues to face a challenging revenue environment, Verizon’s consumer segment is projected to witness steady growth. However, intense competition continues to pressure profitability as promotions targeting new customers challenge Verizon’s ability to balance pricing strategies with revenue growth, limiting room for margin expansion.
Verizon’s strategic initiatives, including ongoing restructuring efforts and asset management strategies such as the tower operating deal with Vertical Bridge, are expected to improve long-term operational efficiency and financial stability. While these moves provide stability, their immediate impact on free cash flow and profitability appears to be moderate, with significant benefits likely to materialize over time.
Leading Wall Street analysts rate Verizon as a “Buy,” with an average price target suggesting a potential upside of over 19% within the next 12 months. However, Bank of America Securities and JPMorgan analysts recently reiterated their “Hold” ratings, reflecting a balanced view of Verizon’s long-term potential and near-term challenges.
Against this backdrop, investors seem to be skeptical towards the stock, which declined by about 6.5% in the past month. Although VZ remines one of the most stable stocks in its sector with a stellar dividend track record and high dividend yield, its performance over the next year is in question due to earnings growth considerations. We plan to revisit this communications giant in the future, but at the moment we see it as prudent to sell the stock.
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Smart Investor’s Winners Club
The 30% Winners Club includes stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Despite the volatility in the markets in the past weeks, our exclusive club’s ranks remained unchanged except for the movements within the Winners’ cohort, still including 16 stocks: AVGO, GE, ANET, EME, TSM, TPL, ORCL, HWM, APH, PH, IBKR, ITT, PYPL, KKR, PNR, and CRM.
The first contender is still AMZN with a 23.70% gain since purchase. Will it close the gap, or will another stock outrun it to the finish line?
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Disclaimer
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