The Travelers: Pull-Back Is Buy Opportunity

The Travelers (TRV) represents one of the few moderate-risk/decent growth opportunities in this market, and that's a major reason I'm reiterating my buy rating for the company's shares), first recommended on April 24, 2009 at a price of $30.50. If you bought TRV in April 2009, you're up about 60%.I expect The Travelers to register earned premium growth of 1% to 3.5% in fiscal 2010. Meanwhile, investment income should increase 8% to 11% fiscal FY2010.

Further, The Travelers' will continue to improve underwriting results and to capitalize on the flight-to-quality in the property-casualty insurance market. And the surprising thing about the company's recent performance history is that institutional investors -- perhaps chasing higher returns in likely, stronger-growth plays -- still haven't bid-up The Travelers' shares. The stock has a price-earnings ratio of about 10 so the stock looks pretty cheap.

To be sure, TRV may have to add to loss reserves for certain liability coverage lines, but that should not deflect from the appeal of its superior, demonstrated, diversified insurance business model. The First Call FY2010/FY2011 EPS estimates for TRV are $5.76 to $5.78.

Technically, The Travelers' stock dipped below the key, 50-day moving average in December 2009, but that was most likely due to year-end profit taking by short-term institutional investors. The stock has since popped back above the 50-day MA in January, confirming the uptrend. Hence, view the recent pull-back as a buy opportunity.

Finally, the Sell/Stop Loss has been raised to $30, or to just above below cost, from $22. So this is a zero-risk trade for your April 2009-bought shares.

2010 Outlook: The Travelers is a long-term play, but if you're looking to sell TRV within the year, take your profits after it rises to $58 to $59 per share, if it fails to clear $60.

Stock Analysis: The Travelers is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in TRV now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your TRV position before March 2010. Revised Sell/Stop Loss if you bought shares in this company: $30.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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