The Right Moment to Buy Chubb?

Feb. 5.07 | About: The Chubb (CB)

The Chubb Co. is a profitable property and casualty insurance operation. CB has outperformed the S&P for many years, but with less volatility (beta .91).

Although the current dividend yield of 1.89% is a bit light, dividend growth has been quite satisfactory - Chubb has raised the dividend annually for at least 25 years - and the payout ratio is modest. CB’s annual total return potential appears close to 12%. This stock looks quite cheap by conventional valuation standards. The P/E ratio and P/CF ratio are both below 9. The company is financially sound and has relatively little long-term debt.

There have been good years and lean years, but Chubb consistently makes a lot of money. In most of the last ten years Chubb’s premium income has exceeded casualty losses by a hefty margin. The stock is in a nice uptrend and does not appear to be overbought. I am interested in buying Chubb, but surprisingly, I see it has a higher 3-year correlation to the energy and utilities sectors than it does to the financial sector. This may indicate vulnerability if energy prices weaken or if interest rates continue rising, so I plan to wait for a modest pullback.