TOAfter a strong end to March, the bears are back to kick off the strong seasonal month of April. A near-record intra-month rise of over 16% on the Nasdaq has started to fade as the tech-heavy index is now down -2.5% to start this holiday-packed month. The ‘yo-yo’ market is playing on investors’ emotions, from hope to fear and back again, with the VIX index serving as our proxy for these emotions. The widely followed fear gauge has come back to life, surging more than 17% in recent days.
The Federal Reserve’s March policy meeting minutes are due out today at 2 pm ET and may be adding to the volatility. The recent aggressive tone, coupled with policymakers’ expectations of future interest rate hikes, are once again dampening investor sentiment. Fed Chairman Jerome Powell stated during his recent press conference that the minutes will portray the parameters of balance sheet adjustment as the Fed writes off trillions of dollars in asset purchases made during the pandemic. The 10-year Treasury bond yield soared to 2.64% this morning, its highest level in more than three years.
One way we can sidestep recent volatility is to target pockets of the market that are outperforming and showing some immunity to downside moves. The iShares US Insurance IAK ETF fits the bill as the group has hit higher highs this year while the market has moved back and forth. Using the 10-month simple moving average as our trend indicator, take a look at how IAK has found support in recent years while showing little volatility:
Image Source: StockCharts
While the iShares US Insurance ETF may underperform during bull periods, these companies tend to outperform during defensive times like the environment we find ourselves in this year. Today’s price action is a great example of this, as the major indices are down substantially while the IAK is heavily in the green.
Let’s take a look at the top two individual stocks within the IAK ETF that account for more than 20% of the fund’s holdings. Both companies are part of the Zacks Insurance – Property and Casualty industry group, which currently ranks in the top 33% of approximately 250 industries. Targeting individual stocks contained within major industry groups provides a constant “tailwind” to our investment success. Note below the favorable characteristics for this insurance group:
Image Source: Zacks Investment Research
Chubb Limited (CB)
Chubb Limited is a property and casualty insurance company. It provides a number of services including commercial and personal property and casualty insurance, casualty and supplemental health insurance, reinsurance and life insurance. CB markets its products primarily through insurance and reinsurance brokers. Chubb Limited was incorporated in 1985 and is based in Zurich, Switzerland.
CB has built an impressive track record in terms of earnings surprises, missing just one quarterly estimate in the last five years. In February, the insurance company reported fourth quarter earnings per share of $3.81, a surprise of +16.51% over consensus of $3.27. CB has posted a four-quarter average earnings surprise of +12.03%, which helped the stock’s 35.5% return over the past year.
Chubb Limited Price and Surprise EPS
Analysts are bullish on CB, raising their Q1 estimates by +1.41% last week. The Zacks Consensus Estimate is now $3.60, which would translate to 42.86% growth relative to the same quarter last year. CB is set to report quarterly results on April 26the.
The Progressive Corporation (PGR)
The Progressive Corporation is an insurance holding company that offers personal and commercial property and casualty insurance along with other specialty insurance services primarily in the United States. PGR offers auto, property, general liability and other insurance products through its subsidiaries. The company sells its products through independent insurance agencies and directly to consumers. The Progressive Corporation was founded in 1937 and is headquartered in Mayfield, OH.
PGR has missed earnings estimates only three times in the last three years. The insurance company recently reported a fourth quarter EPS of $1.05, beating the consensus of $0.99 by +6.06%. The stock has responded favorably and is up nearly 14% this year alone.
The price of the Progressive Corporation and the surprise of EPS
What the Zacks model reveals
The Zacks Earnings ESP (Expected Surprise Prediction) seeks to find companies that have recently witnessed positive earnings estimate revision activity. This more recent information can better predict future earnings and can give investors an advantage during earnings season. The technique has proven to be quite useful in finding positive profit surprises. In fact, when combining a Zacks Rank #3 or better with a positive earnings ESP, the stock produced a positive surprise 70% of the time based on our 10-year backtest.
PGR is a Zacks Rank #3 (Hold) and has a Win ESP of +0.21%. There may be another hit on the cards when the company reports first-quarter results on April 21.St..
Analysts covering PGR expect the progress to continue this year, with the 2022 Zacks Consensus EPS Estimate anticipating a 9.98% growth rate at $4.85 per share.
Keep an eye on these two insurance giants as they look poised to continue their outperformance.
Zacks Names “The Best Single Pick To Duplicate”
Out of thousands of stocks, 5 Zacks experts have each chosen their favorite to soar 100% or more in the coming months. Of those 5, the director of research, Sheraz Mian, chooses one that has the most explosive advantage of all.
It’s a little-known chemical company that’s up 65% from last year, but it’s still very cheap. With relentless demand, skyrocketing earnings estimates for 2022, and $1.5 billion for share buybacks, retail investors could jump in at any time.
This company could rival or outperform other recent Zacks stocks to double down, such as Boston Beer Company, which is up +143.0% in just over 9 months, and NVIDIA, which is up +175.9% in a year .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.