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The last time I wrote about Cincinnati Financial Corporation (NASDAQ:CINF) I stated, "I'm going to take another pass on this stock right now and evaluate again after earnings." Since it is time for my quarterly portfolio change-out I've decided to sell Cincinnati Financial out of the portfolio and replace it with MetLife, Incorporated (NYSE:MET) because I believe MetLife has a lot more upside to it than Cincinnati Financial. MetLife provides insurance, annuities, and employee benefit programs in 50 countries through its subsidiaries and affiliates. On October 30, 2013, the company reported third quarter earnings of $1.34 per share, which was in-line with the consensus of analysts' estimates. In the past year the company's stock is up 62.43% excluding dividends (up 64.14% including dividends), and is beating the S&P 500, which has gained 30.32% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis when compared to Cincinnati Financial to show why I've made the switch for the financial sector of my dividend growth portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 23.75, which is fairly priced, 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 9.04 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $5.75 per share and I'd consider the stock inexpensive until about $86. The 1-year PEG ratio (9.98), which measures the ratio of the price you're currently paying for the trailing 12-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 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 2.38%. Below is a table of the fundamental metrics I look for in a company and shows how MetLife fairs against Cincinnati Financial. All data is as of 16Nov13.

Ticker

Price ($)

TTM P/E

Fwd P/E

EPS Next YR ($)

Target Price ($)

PEG

EPS next YR (%)

MET

52.01

23.75

9.04

5.75

86

9.98

2.38

CINF

51.08

14.35

19.14

2.67

40

N/A

-1.8

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 2.11% with a payout ratio of 50% of trailing 12-month earnings while sporting return on assets, equity and investment values of 0.3%, 3.9% and 1.1%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I don't believe the 2.11% yield of this company is good enough for me to take shelter in for the time being. Below is a table of the financial metrics I look for in a company and shows how MetLife fairs against Cincinnati Financial. All data is as of 16Nov13.

Ticker

Yield (%)

Payout TTM (%)

ROA (%)

ROE (%)

ROI (%)

MET

2.11

50

0.3

3.9

1.1

CINF

3.29

47

3.5

10.3

6.6

Technicals

(click to enlarge)

(click to enlarge)

The technical situation of how both stocks are trading in the short term is almost identical. Looking first at the relative strength index chart [RSI] at the top, I see both stocks muddling around overbought territory with a value of 69.14 for MetLife and 64.72 for Cincinnati Financial. I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is above the red line with the divergence bars increasing in height, indicating a bullish pattern for MetLife while the black line is about to cross above the red line with the divergence bars also increasing in height for Cincinnati Financial. I'd look out for Cincinnati Financial though, because if the black line can't cross above the red line I see about a 1.56% drop in the price of the stock.

Conclusion

These are two different types of insurance companies with MetLife operating more on the life insurance side and Cincinnati Financial operating on the property & casualty insurance side of things. Fundamentally I believe Cincinnati Financial to be fairly valued based on future earnings, but I also feel that it can drop in price dramatically based on those earnings because they are expected to contract in the next year. MetLife on the other hand I believe to be extremely inexpensive based on future earnings and the main reason I'm buying into the stock. Financially I'm giving up quite a bit of dividend but I believe it is okay because I like the capital appreciation opportunity much better with MetLife. On a technical basis both stocks are exhibiting almost identical characteristics with Cincinnati Financial having just a little bit to catch up. Though I may be leaving a little bit of price appreciation on the table by selling out of Cincinnati Financial, I like the longer term price appreciation story in MetLife that much better. I will provide reports on how each is doing against each other as the future progresses.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: Quite A Bit Of Upside Left In Dividend Paying MetLife