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Tom Armistead
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I am a retired accountant, having spent the early years of my career in the insurance industry and the later part in the field of accounting. My insurance experience has given me the willingness to accept investment risk if I feel the return justifies it; also, an interest in applying risk... More
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Tom Armistead's Instablog
  • Travelers: Some Brief Thoughts On Valuation  2 comments
    Jan 24, 2012 7:52 PM | about stocks: TRV

    Travelers (NYSE:TRV) reported earnings today, a 2 cent miss on earnings and a beat on revenue. Market reaction was negative, and misses the point: management is systematically raising rates, which will improve margins over time.

    Meanwhile, here's a snip from my workbook:


    Ben Graham suggested buying quality, dividend paying stocks when their P/E5 was less than 15. Travelers is trading for less than half that multiple.

    The company has been buying back shares at discounted prices, reducing share count an average 7% per year. The result, as shown, is that when assessing normalized earning capacity by looking at historical results, it's important to adjust for share count.

    I added to my exposure today and will add more if the stock continues to decline.

    Disclosure: I am long TRV.

    Stocks: TRV
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  • pemdas1
    , contributor
    Comments (263) | Send Message
     
    Tom -- Your articles are great. I wonder if the pullback today might be due to the southern tornados yesterday. If we get this kind of casualty loss in January, what is it going to be like in April?

     

    --Long TRV and likely to add more.
    24 Jan 2012, 09:21 PM Reply Like
  • Tom Armistead
    , contributor
    Comments (6228) | Send Message
     
    Author’s reply » pemdas1,

     

    Other insurers have talked about an increase in non-cat weather losses, there seems to be a trend, I guess my take is it all makes its way into the rate in the end. Then the cycle ends, and they print money.

     

    I read the transcript, the analysts were all over the price increases, how big are they, how fast can the additional premiums be earned, is it affecting retention, etc. Many in the industry report a firming of prices, to include AIG, who have said they are going to charge enough to cover their losses and make a profit.

     

    When earnings are reported, if there is one trivial thing that can be picked on, the stocks are selling off for no real reason.

     

    To me, it's about a very nervous market where investors have become accustomed to multiple compression, even the analysts are using lowball multiples, there are a lot of single digit P/E's where everybody seems to be accepting it, that's how it is.

     

    I'm investing on the basis that TRV will make it into the low 70's, sooner or later.
    24 Jan 2012, 09:34 PM Reply Like
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