The Travelers: Undiscovered gem

Look for non-sexy insurer The Travelers to register earned premium growth of 1% to 3.5% in FY2010, compared to a likely statistically flat FY2009.

Meanwhile, investment income should increase 7% to 9% in FY2009, followed by a double-digit gain in FY2010.

Further, look for The Travelers' to continue to improve underwriting results and to capitalize on the flight-to-quality in property-casualty insurance market. And the surprising thing about the company's recent performance history this is that institutional investors (IIs) -- perhaps chasing higher returns in likely stronger-growth plays -- still haven't bid-up The Travelers' shares: a P/E of about 10 means TRV is still pretty cheap. If you didn't purchase shares in April, you have an opportunity to do so now, at an attractive price.

True, TRV may have to add to loss reserves for certain liability coverage lines, but the view from here argues that the above in no way deflects from the appeal of this superior, demonstrated, diversified insurance business model. The First Call FY2009/FY2010 EPS estimates for TRV are $5.63 to $5.63.

Techncially, The Travelers' stock chart is strong: since breaking out of a trading range in the summer, TRV has remained above the key, 50-day moving average, and the stock recently broke through psychological resistance at $50; 2-year resistance at/near $56 should prove to be minor.

Stock Analysis: The Travelers Companies is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in TRV now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your TRV position before December 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.