While taxpayers continue to feel the effects of bailing out insurers, a University of Iowa finance professor figured out a way to make money by trading the stock of well-managed property- and liability-insurance companies. Since last fall, Ty Leverty bought shares of such firms on days when the sector got hit by poor financial results, only to have share prices bounce back after investors realized that these companies aren’t as exposed to the same risks that banks and life insurance companies are. His portfolio is up about 10 percent versus the stock market’s loss of about 30 percent. He warns, however, that he must trade frequently to get bargains and that prices are so volatile that he often loses all of his profits before prices rebound.
Frequent trading of stocks in a volatile industry might be too difficult for many investors, so we asked two money managers which companies are promising. Wes Moss of Capital Investment Advisors likes Traveler’s (NYSE: TRV; Price: $42.84) for its good fundamentals, 3.4 percent dividend and track record since last fall. He also favors Chubb (NYSE: CB; Price: $42.86) for the size of its reserves compared with that of its competitors and because it has conservative, well-underwritten insurance portfolios, which will perform well as markets recover.
Eric Hu of Gryphon Asset Management says two companies that stand out by virtue of their diversified business lines and their stocks trading at price/earnings ratios below the mean are Axa Group (NYSE: AXA; Price: $15.37) and ING Groep (NYSE: ING; Price: $8.19).