Can Travelers Continue This Bull Run?

   on March 08 2013 3:17 PM

With shares of Travelers (NYSE:TRV) trading around $81, is TRV an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for a Stock’s Movement

Travelers is a holding company that provides a range of commercial and personal property insurance and casualty insurance products and services to individuals and businesses. Commercial and personal properties have been seeing increasing demand since the financial crisis. As commercial and personal property purchases are on the rise, look for companies like Travelers to be well-positioned to provide proper insurance products.

T = Technicals on the Stock Chart are Strong

Travelers is one of the few financial stocks that continues to defy gravity and keep making all-time highs. Since its initial public offering, the stock has been in an uptrend consisting of higher highs and higher lows, although it has seen its fair share of volatility. Currently, Travelers stock is trading at all-time highs with no selling pressure in sight.

Let’s take a look at the key simple moving averages in order to dissect Travelers’s price trend. The key moving averages are the 50-day, 100-day, and 200-day simple moving averages. Travelers stock is trading above these rising key averages that are consecutively stacked. What does this mean? The stock is displaying a wonderfully strong uptrend.

One to gain perspective into investor sentiment is through the use of the options market. More specifically, taking a look at the implied volatility and implied volatility skew levels of Travelers options may help determine if investors are bullish, neutral, or bearish. The implied volatility of Travelers options is at 15.96 percent today which coincides with a 50th percentile over the last 30 trading days and 40th percentile over the last 90 trading days. What does this mean? This means that investors or traders are buying a good amount of call and put options contracts, as compared to the last 30 and 90 trading days.

The implied volatility skew of April and May put options is steep while call option skew is average. As of today, there is an average demand from call buyers or call sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. Investors are buying a good amount of call and put option contracts and are leaning neutral to bearish over the next two months, potentially hedging the monster gains they have already made.

E = Earnings Are Mixed Quarter-Over-Quarter

In order for Travelers to continue to see rising prices, it must see increasing earnings and revenue growth. What do the last four quarterly earnings and revenue growth figures for Travelers look like? The last four quarterly earnings growth (Y-O-Y) rates have been: -47.06, 179.7, 238, and 5.2 percent while the last four revenue growth (Y-O-Y) rates have all been: 1.63, 1.64, -0.45, and 1.82 percent. At first glance, the latest earnings growth figures do not look so good.

How did the street like these numbers? The last four quarterly earnings announcement reactions help gauge investor sentiment on Travelers’s stock. The last four quarters have seen next trading session returns of -0.39, 3.58, -0.47, and 3.75 percent. The markets have been mixed with the last four earnings reports.

E = Excellent Relative Performance Versus Peers and Sector

Travelers has been on a surge since its IPO but how has the stock done, relative to its peers and sector, year-to-date? Year-to-date, the stock is returning 11.95 percent while its competitors, American International Group (NYSE:AIG), WR Berkley (NYSE:WRB), Berkshire Hathaway (NYSE:BRK-A), and sector are returning 8.96, 9.04, 11.38, and 14.8 percent respectively. Travelers has led most of its closest peers but is trailing its overall sector slightly.

Conclusion

The insurance business is here to stay, so Travelers is in a key position to see continued profits. Its stock has been a great performer year-to-date as it has beat its closest competitors. Travelers stock is supported by its moderately increasing earnings and revenue growth rates that have pleased the Street. Look for Travelers to OUTPERFORM.

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