Insurance company Arthur J. Gallagher is Tuesday's pick for IBD 50 Growth Stocks To Watch. The insurance stock is forming a bullish pattern in tight trading as insurance-broker stocks hold up in a difficult market.
Arthur J. Gallagher offers property and casualty insurance and risk management programs worldwide.
The company has been busy making acquisitions.
It acquired transportation insurance broker Hartley Cylke Pacific Insurance Services on Monday. This adds to the acquisition of trucking insurance broker Ace Commercial Insurance Center and the purchase of Eastern Insurance Group, both made last week. Arthur J. Gallagher closed on 15 acquisitions in the second quarter as part of the 25 additions in the first two quarters of this year.
Gallagher ranks No. 3 out of 15 stocks in the insurance-brokers group. The group ranks a respectable No. 34 out of the 197 IBD industry groups.
The insurance stock has advanced 23% so far this year while the group has risen 20%, vs. the S&P 500's nearly 13% gain. Insurance stocks are often seen as a defensive play in times of market turbulence.
AJG stock, which is also in the IBD Big Cap 20, hit an all-time high of 237.64 on Wednesday, after the Eastern Insurance acquisition and a Raymond James price-target hike to 265 from 255.
Insurance Stock Setting Up
The insurance stock formed a variation of the bullish three-weeks-tight pattern called a four-weeks-tight, after several weeks of small changes in weekly closing prices. The buy point is 237.64, although 232.41 (the Aug. 30 high) can also be justified as an entry.
The four-weeks-tight is a follow-on formation for Gallagher. Shares are extended from a cup-with-handle base with a 217.87 buy point, and have been on a steady climb since the earnings report, with only one test of the 50-day moving average. The relative strength line has risen with conviction since its July lows.
The insurance stock has a 0.68 beta coefficient, indicating the stock's price movement has less volatility than the S&P 500 over the last 12 months. A reading of higher than 1.0 means the stock may be more volatile and a reading below 1.0 shows a tendency for a lower price percentage movement vs. the S&P 500.
Gallagher's up-down volume ratio is 1.3, according to MarketSmith, which shows demand is increasing.
Profit Continues To Grow
The insurance company reported better-than-expected second-quarter earnings and sales on July 27. Earnings grew 18%, 10% and 17% in the last three quarters. Sales growth accelerated from a 4% decline to gains of 3%, 11% and 20%.
Analysts expect full-year EPS growth of 14% this year and 15% the next, according to MarketSmith.
Arthur J. Gallagher holds an enviable IBD Earnings Stability reading of 7 on a scale of 1 to 99, with lower numbers representing a more stable earnings history. AJG stock earns a top-notch 98 IBD Composite Rating and a 95 EPS Rating.
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