The insurance sector has had its share of woes, due to some companies dabbling in securities that perhaps they shouldn't have. But that does not mean there aren't bargains out there for moderate-risk investors, and with the aforementioned in mind, The Travelers Companies (NYSE: TRV) is worth a review. Although both the underwriting and investment climates will remain a tough road up ahead, Wall Street has once again inordinately taken down a company's shares. The Travelers' actions to improve underwriting results and to capitalize on the flight-to-quality in property-casualty insurance market are not fully-reflected in TRV's shares -- not with a p/e of 9.
Other positives: TRV's balance sheet is more than adequate, price competition in key premium lines has eased slightly, and new business opportunities beckon. The First Call FY 2009/FY 2010 EPS estimates for TRV are $5.39 to $5.48.
The risks: TRV may have to add to loss reserves for certain liability coverage lines, but the view from here is that in no way will blot-out this superior, diversified insurance business model and story.
Stock Analysis: The Travelers is a moderate-risk stock. Consider buying a 25% position in TRV now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your TRV position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $22.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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