The AI Insights stock picker goes outside the box with innovative insurance company Palomar Holdings.
Wouldn’t it be nice to have a little assurance during times of market volatility? A financial safety net during times of trouble? Perhaps a little… insurance?
That might have been what ChatGPT was thinking when it recommended insurance company Palomar Holdings this week.
Of course, insurance stock is strikingly different from actually HAVING insurance, and insurance company stock is notoriously volatile due to storms, fires, and other natural disasters.
That doesn’t mean insurance stock is a bad choice for your portfolio, however, and Palomar is certainly an interesting addition to the overall AI Insights portfolio.
Let’s talk insurance.
ChatGPT stock pick of the week: Palomar Holdings
Here’s what ChatGPT had to say when asked for a stock recommendation this week:
Palomar Holdings (ticker: PLMR) looks like a strong value-oriented pick today for a $100 purchase, given its discount to estimated fair value, earnings growth, and balance sheet profile.
Palomar Holdings (PLMR) at a glance
A look at Palomar’s performance over the last 12 months. Data from Perplexity.
| Company | Palomar Holdings, Inc. |
| Ticker (Exchange) | PLMR (NASDAQ) |
| Founded | 2013 |
| Headquarters | La Jolla, California, USA |
| CEO | D. McDonald “Mac” Armstrong |
| Core business | Specialty property and casualty insurer focused on catastrophe-exposed and niche products (e.g., earthquake, hurricane, flood, inland marine) for individuals and businesses in the U.S. |
| Market cap | $3.6 billion |
| Employees | 253 (2024) |
| Price to earnings ratio (P/E) | 21 |
Our take
Palomar Holdings is a far cry from the buzzier stocks we usually write about like Google and Tesla so it was a good time to check in with senior news writer Dave Kovaleski and get a few quick thoughts about the upstart insurance company:
Palomar Holdings (NASDAQ:PLMR) is an interesting stock. It is a specialty insurer that covers commercial and residential customers for catastrophic events, like earthquakes, floods, hurricanes, which carry higher premiums. But these types of insurers can be more volatile, depending on how many catastrophic events there are.
Palomar is a more diversified specialty insurer, as it balances out its catastrophic insurance by only taking on a small part of the risk. They use third-party reinsurance companies to handle the bulk of the payouts should a major event occur. They also offer property and crop insurance, which are not dependent on catastrophes and are more broad-based offerings. Further, they offer fronting insurance, whereby they rent out their name and A rating to smaller insurers for a fee, but transfer the risk to them.
So, while specialty insurance stocks are typically volatile, Palomar has been pretty steady over the years. It is up about 30% year-to-date (YTD) and has a three-year average annualized return of 44%. Its 5-year average annualized return is 8% while its 10-year return is 34% per year. These are obviously excellent results – to go along with a reasonable valuation, trading at 21 times earnings.
What other experts are saying about Palomar
Unsurprisingly, Palomar Holdings isn’t covered by a huge number of analysts.
Currently, there are just six analysts who cover Palomar, but they do give a consensus of a strong buy recommendation (with five buys and one hold).
According to the analysts, Polomar has a 12% potential upside over the next 12 months with an average price target of $153.60.
A key element that makes Palomar attractive is that it appears to be significantly undervalued. The stock experienced a sharp correction following a somewhat disappointing second-quarter earnings report. Several pundits argued the dip wasn’t really warranted, and the company still carried a raised full-year profit forecast.
As it happened, Palomar beat third-quarter expectations, but the stock has yet to receive the benefit of the positive news.
How did last week’s pick perform?
Long-running cables/connectors company Amphenol was an excellent addition to the AI Insights Portfolio.
It’s hard to argue with the inclusion of Amphenol in the AI Insights portfolio. It’s been one week, and APH is up an eyebrow-raising 8.39%.
One of the main catalysts for the recent price explosion is that Truist Securities raised its price target for Amphenol, which gave investors even more confidence. Truist analyst William Stein updated his price target to a whopping $180 for the stock, representing a sizable 22% gain.
At first glance, Amphenol appears to be a gem of a stock and we’re excited to see how it performs in the portfolio.
The overall portfolio did exceptionally well over the last week. That’s largely thanks to favorable macro conditions, but it’s worth noting that all but two of the nine stocks in the portfolio are now in profit (the laggards are NetApp and, surprisingly, Google).
Still, the portfolio is being carried by tech juggernaut Micron Technology, which is now up nearly 50% since being added in the first week of the AI Insights experiment.
AI Insights Portfolio Week #9
- Total invested: $900
- Current Market Value: $968.18
- Total Unrealized Gains: 7.57%
| Stock | Shares | Day Gain | Total Gains | Market Value |
| Amphenol (APH) | 0.79 | 1.47% | 8.39% | $108.32 |
| Alphabet (Google) | .312 | -1.39% | -1.54% | $98.49 |
| Commercial Metal Company (CMC) | 1.56 | -0.06% | 10.25% | $110.22 |
| Nvidia (NVDA) | 0.536 | 3.01% | 1.44% | $101.42 |
| Progyny (PGNY | 4.15 | -5.16% | 6.23% | $106.12 |
| Seagate (STX) | 0.363 | -0.02% | 2.55% | $102.66 |
| Comcast (CMCSA) | 3.5 | 0.41% | 2.98% | $102.83 |
| NetApp (NTAP) | 0.86 | -0.96% | -5.93% | $94.36 |
| Micron Technology (MU) | .52 | -0.17% | +43.94% | $143.66 |
The returns for the control portfolio, which is composed entirely of the Vanguard Total Stock Market ETF (VTI), are significantly less impressive when compared to the AI-assisted portfolio.
The control portfolio is up a measly 2% since its inception nine weeks ago, which is a far cry from the 7.57% gain of the AI Insights portfolio.
There’s not really a lot more to say here, although at the very least, the VTI portfolio is back in profit after dipping into the red last week.
Standard Portfolio (100% VTI) Week #9
- Total invested: $900
- Current Market Value: $918.78
- Gains: 2.03%
| Stock | Shares | Day Gain | Total Gains | Market Value |
| Vanguard Total Stock Index (VTI) | 2.71 | 0.33% | 2.03% | $918.78 |
Methodology
Every week, we ask ChatGPT for a simple stock recommendation after the market closes on Wednesday. Then, we invest $100 in the stock and $100 in a control portfolio consisting of 100% VTI. The idea is to gain insight into how following ChatGPT’s advice compares to a passive investment strategy.
You can read more about the parameters for the experiment at the bottom of the first AI Insights article.
Disclaimer: Neither large language models nor ValueWalk suggest using this as an actual investment strategy. This article is for educational purposes only.
