Chubb is undervalued

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.