Disasters are things that we can't really avoid and must be very well prepared for because we would all hate the possibility of losing everything we worked hard for over the years. I always say to prepare for the worst and hope for the best, and the way to prepare for the worst in terms of natural disasters is to purchase insurance to at least recoup some of the lost assets that may have been lost in a disaster. Most recently we had the tornadoes in Oklahoma, the fertilizer plant explosion in West Texas and now a wild fire in Southern California. One of the better ways to play this theme in terms of stocks is Travelers (TRV), and the insurance it provides against a market downturn is a healthy dividend which has lots of room to grow. Since Travelers through its subsidiaries is engaged in providing a range of commercial and personal property and casualty insurance, its earnings and stock valuation could be hurt by the kinds of disasters I mentioned. However, these types of disasters are few and far between and insurance companies have recurring revenue in the form of your monthly payment and take their sweet time before paying you back what you are due until after they've done their investigations and the like. That's why I believe property and casualty stocks are good to own in a portfolio because of their ability to make money off of your money until they pay it back to you. Travelers has been on par with the rest of the market for 2013 so let's take a fundamental and technical look at it right now to see if it's a buy or not at these levels.
Travelers currently trades at a trailing twelve month P/E ratio of 12.71 which is pretty inexpensive, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 10.75 is currently priced very inexpensively and can grow 40% before I can consider expensive. The PEG ratio (1.27) which measures the ratio of the price you're currently paying for the trailing twelve month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 5-yr horizon) tells me that Travelers is fairly price based on a 5-year EPS growth rate of 10.04%. What all this really tells me is that Travelers is very inexpensive for the near term but is appropriately priced for the long term.
On a financial basis the things I look for are the dividend payouts, return on assets and equity. Travelers boasts a dividend of 2.39% with a payout ratio of 28.06% while sporting return on assets and equity values of 2.46% and 10.09%, respectively. These are all respectable values but not high enough for me personally to consider buying my full position in the stock. If maybe you feel the market will retract a little more and would like a safety play then maybe the 2.39% yield with the low payout ratio of this company is good enough for you to take shelter in for the time being. The dividend was most recently hiked 9% to a payout of $0.50/quarter with an ex-date of June 5, 2013.
The top chart is the relative strength index (RSI) and it currently stands at a value of 43.46 which says to me that it is moderately oversold. A value of 30 typically depicts an oversold value while a value of 70 depicts an overbought value. The next chart I like to look at is the moving average-convergence (MACD) chart on the very bottom which illustrates the moment of a stock. When the black line crosses below the red line like it did in mid-May it usually shows downward pressure on the stock, and if you look at the middle chart while also looking back at the RSI chart you will see that both of them started moving down. But something to notice on the MACD chart is that the divergence (blue graphs) is starting to get smaller, which may mean there might be a flattening out of the stock in this area and a shot up. It will take a couple of days to figure out precisely what is going on. The actual chart in the middle shows the stock is below its 20 and 50-day moving averages which can act as resistance for the time being. If the stock can grab some upward moment I see it going to $86.89. If the stock continues its current downward trajectory I'd look for $81.57 to act as a floor of support.
This good yielding, low payout ratio insurance company has been increasing its dividends for nine years already and should continue increasing them in the future. The fundamentals tell me that it is an excellent and inexpensive stock to keep in the portfolio for the short-term and to re-evaluate after about a year. The technicals tell me that there is some downward pressure on the stock but that it looks like it is flattening out and can have a pop in the near future. I'm currently buying into the stock because I don't think anyone can ever predict a bottom of anything, but I believe it is somewhere in this location for Travelers in the near term.
These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade, and happy investing.
Disclosure: I am long TRV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: TRV is in the dividend portion of my portfolio.