Michael Michaud's  Instablog

Click Here for a Free Trial of the "Profit Rockets" Stock Picks Service

Financials have been strong performers in this latest leg of the recovery, as these once beaten down companies have come back strong over the past six months. Yet while many investors might focus in on big banks for their exposure to this segment, one corner of the financial world has been doing even better; insurance.

This segment has seen even better performances than both the broad financial sector and the S&P 500 in the past few months, including a nearly 20% gain YTD for many broad insurance benchmarks. And with some shakiness on the revenue front for many big banking institutions, those who want to make a play on financials could be better served by looking at the insurance segment for exposure.

While many investors might focus in on big names like Progressive (PGR) or Travelers Companies (TRV) for exposure, taking a closer inspection of some overlooked smaller caps could be a better way to go. This is especially true if these firms are seeing solid estimate revisions and a clear path for growth, such as in the case of XL Group PLC (XL) .

XL Group in Focus

XL is an Irish-based global insurance and reinsurance company providing property, casualty and specialty products to a variety of organizations around the globe. The vast majority of their revenues are derived from premiums, though their investment income and underwriting business also contribute meaningfully as well.

The company has largely benefited from a lack of huge catastrophes in the recent past, which has helped them to keep earnings elevated. This trend, plus the added boost from the underwriting division-which increased threefold year-over-year-has helped to put the company in a very solid position (in a top performing industry no less) going forward.

Estimate Outlook

Analysts have also begun to take note of this positive trend and have begun to increase their expectations for the company. While the near term picture for this metric is still mixed from a revision look, the current year and next year figures are pretty rosy.

In fact, in the last 60 days, we have seen 12 estimates move higher for the current year and ten move higher for the next year time frame. This compares to zero downward revisions for the 2013 fiscal year, and just one down for the 2014 time frame; a ratio (when combined) of 22 to 1 in favor of positive revisions.

But analysts haven't just been revising their numbers up a little bit either, as the consensus has been shooting higher for both time frames. Just 90 days ago the 2013 consensus stood at $2.44/share while today it is at an impressive $2.87/share, a 17% increase in a quarter's time.

While some might think this is too lofty of a goal for the company to reach, it is worth noting how admirably the firm has performed in earnings season. XL has beaten estimates by double digits in each of the past four quarters and has seen an average surprise of over 56% in the time frame, meaning that the firm is definitely capable of some big beats.

Click the Image for a Larger View

(click to enlarge)

This impressive earnings picture has bumped up XL to a Zacks Rank #1 (Strong Buy), putting it in elite company, and suggesting that it is a great investment right now. This is even more true when you consider that the stock has a Zacks Recommendation of Outperform, and that the insurance- property & casualty industry is one of the top 10 (out of 261) industries in the entire market.

Other Factors

If this solid earnings picture and top Zacks Rank wasn't enough, it is also worth pointing out some of the shareholder friendly initiatives that the company is undertaking. These items look to help boost interest in XL and make it stand out even more when compared to its peers.

The firm bought back eight million shares and still has a big chunk of capital to buyback more shares in the weeks and months ahead as well. Additionally, the firm also boosted its dividend by 27%, to 14 cents a share, so it is doing its best to make shareholders happy on this front too.

Bottom Line

Financials seem like a great play and have seen strong momentum over the past few months. However, the real winning play in this segment has been insurance, as this corner has surged higher that both broad financials and the overall market.

While a broad play on the space could be an interesting idea, a look to XL could be a better choice. This firm has a tremendous earnings story, an increasing dividend, and stock buybacks, making it a great triple threat for investors as we approach the summer months.

By Zacks Investment Research

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XL over the next 72 hours.

Profit From Zacks Investment Research Earnings Estimates Revisions Free Trial of Zacks a leading investment research firm focusing on equities earnings estimates and stock analysis for the individual investor, including stock picks, stock screening, portfolio stock tracker and stock screeners. "Earnings estimate revisions are the most powerful force impacting stock prices" Zack Investment Research Founder Leonard Zacks, Ph.D. Mathematics M.I.T.

May 10, 2013 - Top 5 #1 Ranked Technology Mutual Funds by - By Zacks Investment Research

More often than not the technology sector is likely to report above par earnings than other sectors as the demand for technology and innovation remains high. However, technology stocks are considered to be more volatile than other sector specific stocks in the short run. In order to minimize this short term volatility almost all tech funds adopt a growth management style with a focus on strong fundamentals and a relatively higher investment horizon. Investors having an above par appetite for risk and fairly longer investment horizon should park their savings in these funds.

Below we will share with you 5 top rated technology mutual funds. Each has earned a Zacks #1 Rank (Strong Buy) as we expect these mutual funds to outperform their peers in the future. To view the Zacks Rank and past performance of all technology funds, investors can click here to see the complete list of funds.

Goldman Sachs Technology Tollkeeper A ( GITAX ) seeks capital appreciation over the long term. The fund invests a large share of its assets in equity securities of in equity securities of Tollkeeper companies. Generally, the fund purchases domestic securities. The technology mutual fund has a ten year annualized return of 11.42%.

The fund manager is Jeffrey Rabinowitz and he has managed this technology mutual fund since 2011.

Northern Technology ( NTCHX ) invests capital growth over the long term. The fund invests the majority of its assets in companies whose principal operations are conducted in the technology sector. It may invest heavily in IPOs. The technology mutual fund has a ten year annualized return of 8.73%.

As of March 2013, this technology mutual fund held 64 issues, with 7.12% of its total assets invested in Google, Inc. Class A.

Dreyfus Technology Growth A ( DTGRX ) seeks capital growth. The fund invests in securities of technology companies which have high earnings growth prospects. A maximum of 25% of its assets may be utilized to purchase foreign securities. The technology mutual fund has a ten year annualized return of 9.00%.

The technology fund has a minimum initial investment of $1,000 and an expense ratio of 1.45% compared to a category average of 1.60%.

T. Rowe Price Global Technology ( PRGTX ) invests the majority of its assets in companies which expect to derive a large proportion of their revenues from the development and application of technology. The fund invests at least 30% of its assets in both mature and developing foreign markets. The technology mutual fund has a ten year annualized return of 13.34%.

The fund manager is David J. Eiswert and he has managed this technology mutual fund since 2008.

Black Oak Emerging Technology ( BOGSX ) seeks capital appreciation over the long term. The fund invests a large share of its assets in equity securities of those firms that are expected to emerge as market leaders in the technology sector. The technology mutual fund has a ten year annualized return of 8.40%.

The technology fund has a minimum initial investment of $2,000 and an expense ratio of 1.35% compared to a category average of 1.60%.

Click Here for a Zacks Investment Research Free Trial

5 Secrets of Wall Street by Zacks Investment Research

Investing can be a jungle, a battlefield, even a nightmare if you don't follow sound principles of diversification and risk management. The good news is that in the age of the Internet, the self-directed investor has been given access to the research and tools of the professionals.

The bad news is that the business of investing still has its own unwritten rules that can trip you up if you're not careful. You could call them "secrets" because when you listen to a pro talk about how he or she is making money on a particular stock, they don't tell you this part.

Secret #1: They Have to Buy

What is the business of institutional investors who manage other people's money? It is to deploy that capital. Lots of different equity portfolio managers have mandates and performance benchmarks that create certain behavior, such as being fully invested even when the market is peaking.

I am not even addressing how analysts or brokers work on the Street to facilitate this business. I'm just talking about fund managers having a bias to buy stocks, not short them. How strong a force is this bias? Trillions strong.

The combined assets of the nation's 4,500 equity-only mutual funds stood at over $7 trillion in March. It is the business of these portfolio managers, along with hundreds of others at pension funds, insurance companies, and endowments to put this capital to work in stocks.

On top of this money ear-marked for equities, there is over $2.6 trillion in money market funds, and another $3.5 trillion is sitting in various bond funds, based just on the reported data of 2,500 funds in the Investment Company Institute survey. This is all "cash on the sidelines" that could help PMs do their primary job: buying stocks. While they "have to buy," we enjoy the freedom to control our investment cash and decide what to buy and when.

Secret #2: They Don't Have to Sell

In this secret, I exaggerate (only slightly) to make the point about the pain tolerance of the aforementioned groups, whose job it is to buy stocks with other people's money. It's easy to watch stocks lose 30%, 60%, even 90% when it's not your money.

Do you know what the greatest risk is for a fund manager? It's not losing money or clients. It's underperforming their benchmark (most commonly either the S&P 500 or the Russell 2000). So if stocks are peaking and then turn down, who knows if it's the top? What if the index surges higher again?

For the most part, they can handle the 20% downturn. But they can't miss the last 10% of upside, especially if they've struggled in their stock-picking at all that year and are at risk of underperforming their peers or benchmark. When you understand at what points in the year fund managers are likely to feel "underinvested," you can take advantage of their fear and greed.

Secret #3: Sector Rotation

This one is simple: money doesn't leave the markets, it just moves around. Especially when interest rates are near zero. Especially when equities still offer the best risk/reward overall compared to other asset classes.

And this one also has quite a bit to do with the economic cycle. During the early expansion phases, it's good to be in "cyclical" sectors such as industrials, materials and energy. As the cycle starts to approach its peak, money will move back out of these areas.

But lately the moves seem hair-trigger in nature. The media loves to call it the "risk on/risk off" trade. With fast-money hedge funds taking short term positions in cyclical stocks, commodities, currencies and ETFs, risk on/off is a very accurate way of describing the "light switch" nature of this trade flow.

Just keep in mind that while the momentum players, who are using lots of leverage in their risk taking, have to move in and out fast, there still exists a longer, slower approach to economic cycle investing that you can benefit from. Knowing where we are in the cycle and which sectors are trending accordingly can put a tailwind behind your investment ideas.

Secret #4: Technology, Liquidity & Speed Rule

Speaking of hedge fund momentum players, this secret explains why they move markets and make so much money doing it. It also explains why you have to work harder & smarter to beat the pros.

I call the world of institutional traders one of "total immersion, instant access." Pro traders are swimming in rich information networks, amid oceans of research, and surrounded by analysts who can summarize it all for them instantaneously. They also have amazing technology, tools and systems to help them quickly capture a majority of high-probability trading opportunities.

Then there are the automated trading systems, the "algos." Algorithmic trading has overtaken markets in many ways. It's not that the machines rule. It's more that they have entrenched themselves by providing constant streams of liquidity that almost can't be matched by human traders.

And the technical "model" funds - essentially, computer programs that use price and volume formulas to trade - will never stop inventing new systems to capture market swings. They run stocks up and they run stocks down, without regard for fundamentals, or sanity.

But while sharks abound in Wall Street's waters, we can profit using their same tools and tactics.

Secret #5: Risk Management Isn't a Science

Speaking of super models, one of the most dangerous ever didn't walk a fashion runway, but it did earn its creators a Nobel Prize. The Black-Scholes option pricing model is "dangerous" because it ushered in the era of derivatives.

Not that there's anything wrong with derivatives like options and futures. But other complex financial engineering - like the kind that spawned the sub-prime housing bubble and subsequent banking meltdown - can be very dangerous indeed.

Why? Because they are all based on some variation of the same quantitative methods used in Black-Scholes. Specifically we are talking about standard deviation and the bell curve.

And these quant tools offer Wall Street the illusion of control and safety. If you can measure the past, and its variations, you can model the future. Sounds simple enough. And it sounds so objective and scientific without appearing to offer precise predictions.

"Don't worry," the quants say. "The statistical volatility (risk) is only X."

The problem is that standard deviation was invented to measure the variation in physical phenomena like the anatomy of animals and the structure of the universe. Nature has an order, and science is all about discovering it, measuring it and classifying it so that we can make reliable predictions about the world.

Markets, meanwhile, are anything but natural physical objects that can give us reliable "standard" measurements. Markets are social beasts with unpredictable "wild randomness" as Nassim Nicolas Taleb calls it his book The Black Swan.

What does all this mean to us? While some on the Street would have us believe that markets are efficient and rational, they are actually more subject to bubbles and shocks. And that spells opportunity for traders who can exploit the emotional extremes of optimism and pessimism.

How to Apply These Secrets for Short-Term Profits

A simple way to take advantage of upward or downward movements is to let us do it for you. That's the purpose of our Zacks Market Timer, a unique buy/sell approach to profiting from quick, explosive swings in industries, sectors and the market as a whole.

While cutting losses short, this strategy maximizes gains by 2X with a simple Zacks metric and then 3X again with a twist on a common investment move. If this sounds interesting, I encourage you to check it out right now.

Click Here for a Free Trial of Zacks Investment Research