The reason MetLife lost $0.09 per share stems from a $1.98 billion loss on derivatives trades the company normally buys as a hedge against changes in interest rates and currency exchange rates. It wasn't mismanagement or systemic ineptness -- it was just miserably bad luck. Had it not booked the derivative loss, the per-share income total would have been $1.76.

As for failing the stress test, CEO Steven Kandarian actually made a valid point by saying in March, "We are deeply disappointed with the Federal Reserve's announcement. We do not believe that the bank-centric methodologies used under the CCAR (Comprehensive Capital Analysis and Review) are appropriate for insurance companies, which operate under a different business model than banks."

Simply put, at a trailing P/E ratio of 5.5, MetLife is a bargain, at least by insurance company standards. It's being punished like a company other than an insurer, however, which may be a temporary condition that the market will recognize.

Risks to Consider: Though unfairly undervalued now, there's no guarantee investors won't remain unimpressed in the foreseeable future and fail to apply any new buying pressure.

Action to Take --> It's tough to get excited about a stock others aren't excited about, but as Warren Buffett can attest, the stocks to buy are the ones nobody cares about at the time. In that light, all three are solid opportunities right now.

If investors only had room for one though, then I think MetLife is it. Between the stress test and last quarter's loss, the market's opinion on the insurer is just shy of disgust. The perceived problems aren't nearly as big as they're being made out to be. As investors start to realize the same, shares could offer as much as a 40% to 50% upside by the end of this year.

-- James Brumley

 

This article originally appeared on StreetAuthority
Author: James Brumley