Last year, Warren Buffett and his team at Berkshire Hathaway eliminated its stake in Globe Life (NYSE: GL), a stock that had been a part of its portfolio for over two decades. The company faced some serious legal issues last year and suffered a deep sell-off earlier this year when it was the subject of a short-seller report.
Since the start of the year, Globe Life stock has plummeted 32.4%, according to data from S&P Global Market Intelligence. Here's what investors should know about the dip and what's next for Globe Life.
Globe Life faces serious accusations
Last year, storm clouds began to emerge over Globe Life when one of its subsidiaries, American Income Life Insurance Co. and Arias Agencies, faced a lawsuit accusing it of inappropriate workplace conduct, including rampant drug use, sexual abuse, and degradation of agents who didn't hit sales targets. Compounding its troubles were accusations from a former executive who said he was fired for blowing the whistle on "potentially illegal" sales practices.
Warren Buffett, who emphasizes management's character and integrity, seemingly took the accusations quite seriously, and Berkshire sold its stake in the insurer last year. Although it wasn't a sizable position, it has long been a staple of Berkshire Hathaway's portfolio since 2001.
Investors seemed to shrug off the accusations as the calendar turned to 2024. Then, on March 6, the U.S. Department of Justice issued subpoenas to Globe Life and American Income Life as part of an investigation into allegations of fraud and misconduct at one of its top life insurance agencies.
In early April, Globe Life took another hit when short seller Fuzzy Panda Research accused the insurer of "extensive" insurance fraud that was ignored by management. The short seller interviewed former employees "who showed us where the fraud was hidden" and that the fraud was ignored by management despite being "obvious and reported hundreds of times."
What's next for Globe Life?
Globe Life has since recovered from its low of $39 per share since the short report was published, indicating that perhaps the sell-off was overdone. Today, the company is priced at a dirt cheap valuation of 8.2 times earnings.
GL PE Ratio data by YCharts
However, the company continues to face questions and received "a preliminary, informal inquiry from the SEC" in May to investigate the short sellers' claims. While it is not a formal investigation by the SEC, these issues pose a risk and will be an overhang for Globe Life's stock for the time being.
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Courtney Carlsen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
