Skip to main content

Value stock with a growth stock chart -- RLI could be worth a look

So how can a stock be on both the Trend Leaders list and the Trend Busters list? To review, the Trend Busters lists consists of those stocks or ETFs that have simply broken a trend line while the Trend Leaders list includes those stocks that are exhibiting bullish performance according to MACD, Wilder's DMI and Aroon analysis.

After running Thursday night's Alert HQ process, I have a stock that is on both of these lists and is also passing the screen for Reasonable Value. This company is RLI Corporation (RLI). Here is the chart :


I've drawn two trend lines in blue: a longer term trend that is sloping upward and which RLI seems to be following and a shorter-term downward sloping trend that the stock has broken through to the upside. The fact that RLI has burst upward out of the wedge formed by the two trend lines is another positive which suggests the stock could hit $59 before too long. All in all, pretty bullish performance.

Why is RLI considered Reasonable Value?

Here are my criteria for the Reasonable Value screen:
  • PE between 0 and16
  • PEG between 0 and 1.2
  • Price-to-Sales less than 2
  • Debt-to-Equity less than 1
  • EV to EBITDA less than 10
Here are the stats on the company:

Market CapPE RatioPrice to SalesPrice to BookPEG RatioDebt to EquityPrice to Free Cash FlowCash Flow Yield Dividend YieldEV to EBITDA
$1.18B102.041.381.130.129.53-1.03%2.08%6.53

RLI meets all the Reasonable Value criteria, with room to spare.

Background --

RLI Corp. underwrites property and casualty insurance primarily in the United States. The company serves the commercial market almost exclusively and operates in three segments: Casualty, Property, and Surety. RLI insures things like office buildings, factories, apartment buildings, refineries, truckers and more.

The company beat earnings estimates earlier this week which allowed the stock to continue its upswing. RLI reported blow-out second-quarter 2010 operating earnings of $1.52 per share, beating the Zacks Consensus Estimate of $1.05 per share by 47 cents. These results also compare favorably with operating earnings of $1.32 per share in the year-ago period. Some of this quarter's earnings gain, however, came from reversing reserves set aside during prior years (the same trick the banks are playing this earnings season) but there were also organic gains from increased premiums and investment income. Underwriting income was $30.8 million, up 22.8% year over year, led by an increase in Property and Surety underwriting income, partially offset by a decline again in Casualty underwriting

A measure of profitability used by insurance companies to indicate how well they are performing in daily operations is the Combined Ratio. A ratio below 100% indicates that the company is making underwriting profit while a ratio above 100% means that it is paying out more money in claims than it is receiving from premiums. For RLI, combined ratio for the quarter improved 480 basis points year over year to 74.7% driven by an improvement in Casualty and Surety combined ratios, partially offset by decline in the Property combined ratio.

Because the growth picture is somewhat murky with the Casualty segment lagging in underwriting and the Property segment's combined ratio failing to improve, Zacks maintains a Neutral rating on the stock. Similarly, Stifel Nicholaus has upgraded the stock but only from SELL to HOLD.

Conclusion --

RLI is a value stock with a growth stock chart. Caveats are that it is not unusual for financial stocks to pass the Reasonable Value screen and the company is seeing uneven results in two of the three segments in which it operates. On the other hand, the company is solidly profitable, raises its dividend on a regular basis and has been able to reduce costs year over year. I'm not an expert in analyzing insurance companies but the stock could be worth a trade.

Disclosure: no positions

Comments

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Thursday Bounce: Trend Busters, Swing Signals and Trend Leaders for July 9, 2009

This is a quick post to announce that we have published Thursday's Trend Leaders, Swing Signals and Trend Busters at Alert HQ . All are based on daily data. Today we have the following: 72 Swing Signals -- A couple of days ago we had 35 signals, today we have twice as many. Happily, we now have 65 BUY signals, a mere 4 SELL Signals plus 3 Strong BUYs. Whoo-hoo! 56 Trend Leaders , all in strong up-trends according to Aroon, MACD and DMI. There are 18 new stocks that made today's list and 60 that fell off Tuesday's list. 48 Trend Busters of which 5 are BUY signals and 43 are SELL signals The view from Alert HQ -- Talk about mixed signals. If you look at our Swing Signals list you would think the market was in the middle of a big bounce. BUY signals are swamping the SELL signals and we even have a few Strong BUYs. Yes, there's a good sprinkling of tech stocks and tech ETFs but the distribution is pretty broad-based with a good number of different sectors represented, eve

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. ( Click here to read the original post ) There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position. This first post in the series starts at the beginning: getting good investment ideas. Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets. As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professional