Insurer Chubb is in the catbird seat

Posted Dec 3rd 2009 2:00PM by Joseph Lazzaro
Filed under: Chubb Corp (CB), Stocks to Buy

Insurer Chubb Corp. (CB) is gaining amid a thinning insurance sector, which is a major reason I'm reiterating my buy rating for the company's shares, first recommended on May 29, 2009 at a price of $39.65. If you bought Chubb in May, you're up about 20%.

The strength of Chubb's operation, in a nutshell: a strong personal insurance brand, a diversified business (personal lines, commercial insurance, specialty insurance), and a stronger balance sheet than many competitors. Hence, look for continued market share gains for CB in 2010. Further, pricing is showing signs of bottoming/firming as of Q3 2009.

The First Call FY2009/FY2010 EPS estimates for CB are $5.95 to $5.47. That $5.47 FY2010 EPS estimate will likely prove to be low.

Technically, Chubb's stock chart is strong, having taken out psychological resistance at $40 and $50. There will be three-year resistance at/near $55, but once this is overcome, CB should move beyond $65 by late 2010.

Finally, the Sell/Stop Loss has been raised to $39, or to just below cost, from $22. Hence, this is an essentially zero-risk trade for your May-bought shares.

Stock Analysis: Chubb Corp. is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in CB 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 CB position before February 2010. Revised Sell/Stop Loss if you bought shares in this company: $39.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: CB