Investors looking to stay invested in volatile markets should think defensively. One way to do that is by investing in insurance companies. These firms are heavily regulated, but don’t carry the risks in a downturn that the banking sector has.
Insurance premiums tend to get paid no matter what. And while there’s usually some event that causes a spike in claims, that ends up being temporary over time.
For instance, Travelers (TRV) beat estimates on first-quarter earnings, even as the company had a substantial loss from its exposure to California wildfires.
Travelers was up on its latest earnings beat, and shares are up 15% over the past year, although they’ve largely traded flat over the past six months on wildfire exposure.
Shares currently trade at 14 times forward earnings, a reasonable discount to the overall market right now. Even with the recent hit from the wildfires, Travelers has managed to keep a steady 10% profit margin.
Action to take: With Travelers having a slow-and-steady increase in earnings, long-term investors can use short-term market fears to build a position.
Travelers also pays a 1.7% dividend, and has a history of raising that payout over time.
For traders, the July $280 calls, last trading for about $5.00, could see mid-double-digit returns or better in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.