Technical and fundamental indicators both show a bullish environment for Travelers Companies (TRV), which has been trading in the range of $81.86 – $89.00 in the past 30 days.
The stock is seeing very strong technical and fundamental characteristics that make it a buying opportunity.
The stock is in a multi-year up-trend as it continues to move in a range bound pattern. TRV stock has been showing support around $83.40 and resistance in the $86.60 range. The stock is trading above the 50-day moving average and above the 200-day moving average.
A LOOK AT FUNDAMENTALS
TRV’s bullish technical indicators are supported by strong fundamentals, as well. Travelers has been able to manage its profitability more effectively by being aggressive about managing its costs to become more sustainable. The underwriting expense ratio has increased from 39.4% to 41.3%.
TRV PE stands at 12.98 above the industry average of 12.83 and below the S&P 500 average of 16.70. The stock is currently trading 4% below its intrinsic value of $89.53 this suggests that the stock is undervalued at these levels. TRV’s current Price/Sales of 1.25 is above the average of its industry of 0.89. TRV’s Total Debt/Equity is 22.80 and is acceptable for our model. The company pays $2.00 dividend with 2.20% yield.
OPTIONS STRATEGY RECOMMENDATION
Investors should consider the following debit call spread: Buy June 2013 85.00 Calls at $1.45 and sell the June 2013 87.50 calls at $0.25. The net debit to start is $1.20, and we recommend holding until spread price reaches $2.45. This strategy will allow you to collect time premium for out of the money short call and decrease the overall cost of the initial investment.
