Does Travelers Belong In Your Portfolio?

With shares of Travelers (NYSE:TRV) trading around $84, is TRV an OUTPERFORM, WAIT AND SEE or STAY AWAY? Lets analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Travelers,through its subsidiaries, is engaged in providing a range of commercial and personal property and casualty insurance products and services to businesses, Government units, associations and individuals. The company is organized into three business segments: Business Insurance; Financial, Professional and International Insurance, and Personal Insurance.The Business Insurance segment offers an array of property and casualty insurance. The Financial, Professional and International Insurance segment includes surety and financial liability coverage as well as property and casualty products. The Personal Insurance segment writes a range of property and casualty insurance covering individuals’ personal risks. Through its segments, Travelers is able it to provide products and services to a growing businesses and consumers across the United States.

T = Technicals on the Stock Chart are Strong

Travelers stock has seen a surge higher over the last few years. The stock is now trading near all-time high prices and shows no signs of slowing. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Travelers is trading above its rising key averages which signal neutral to bullish price action in the near-term.

TRV

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(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Travelers options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Travelers Options

19.58%

96%

92%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Travelers’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Travelers look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-47.06%

179.75%

243.18%

5.21%

Revenue Growth (Y-O-Y)

1.63%

1.64%

-0.45%

1.82%

Earnings Reaction

1.74%

3.58%

-0.48%

3.74%

Travelers has generally seen increasing earnings and revenue figures over the last four quarters. From these figures, the markets have been mostly satisfied with Travelers’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Travelers stock done relative to its peers, Chubb (NYSE:CB), MetLife (NYSE:MET), Prudential (NYSE:PRU), and sector?

Travelers

Chubb

MetLife

Prudential

Sector

Year-to-Date Return

17.32%

15.81%

8.44%

3.53%

17.16%

Travelers has been a relative performance leader, year-to-date.

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Conclusion

Travelers provides essential insurance products and services to a wide range of consumers and businesses around the United States. The stock has been an excellent performer over the years and is now trading in all-time high territory. Investors have been pleased with recent earnings announcements and have bid the stock higher. Relative to its peers and sector, Travelers has led in year-to-date performance. Look for Travelers to continue to OUTPERFORM.

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