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Portfolio Spotlight: Aflac

Aflac is a life insurance company based in the state of Georgia, with a market capitalization of over $30 billion USD. In the U.S., where the company made approximately $6 billion in revenue in 2016, its main line of business is supplemental or voluntary health insurance. Supplemental insurance is a type of product usually purchased on top of standard insurance coverage and is meant to cover out-of-pocket expenses. Aflac is the largest provider of such insurance in the United States. While being a large American company and a constituent in the S&P 500 index, most of Aflac’s business actually comes from Japan, where revenue totalled about $16 billion. The company first expanded to Japan in the 1970s, where it pioneered insurance products specially tailored for cancer patients. It is now also the largest provider of cancer insurance, in addition to also offering health and supplemental insurance products.

Aflac passed the “high quality” screen for financial companies on April 4, 2013. It traded at $50 per share, about 1.3 times book value. At the time it scored a of 5 out of 6 on my financials’ companies fundamental score, indicating good fundamental improvements. The company’s fundamentals don’t appear to have deteriorated, in fact it scored a perfect 6 based on the 2016 annual numbers. Aflac is also profitable for a financial company, averaging over 2% Return on Assets over most of the last several years. Aflac is now at $87 and has returned about 75% so far but jumped 25% in 2017, well ahead of both the S&P 500 and Vanguard Financials Sector ETF. I believe Aflac still has room to go up as its intrinsic value keeps going up over the years and it has the potential to double over the next 3-7 years.

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