The Dow's sell-off from 14,000 and the accompanying investor reluctance to deploy capital has created bargains, and Chubb is one. In general, analysts expect Chubb's (NYSE: CB) financial strength and resultant market share gains from weaker insurers exiting business lines to offset a likely incremental decline in FY2009 revenue.
Further. prices across various lines will begin to firm, and that should help premium growth in FY2010. The First Call FY2009/FY2010 EPS estimates for AFL are $5.16 to $5.19.
Meanwhile, Chubb's balance sheet is superior to its competitors, with a very good business mix.
Also, Chubb, currently trading at about $40, deserves a higher multiple than its current P/E of 9, given its demonstrated business model, superior personal lines, and aforementioned diverse business mix.
The risks include a deterioration in claim trends; Chubb's stock has also straddled below the 50-day moving average for about five months, and that could spark concern if it does not break and stay above it in the months ahead. Still, the risk/return is tipped in favor of a Buy for this superior insurance company.
Stock Analysis: Chubb is a moderate-risk stock. Consider buying a 25% position in CB 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 CB position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $22.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
Closing Bell: When We All Love the PIIGS (NBG, SQNM, PG, ERTS, KO)
Serious Money: Cheapest Stocks List Shrinks from 26 to 21
Chasing Value: Hasbro Earnings Makes My Point
