Insurance stocks continued to defy the stock market correction, as Allstate and new issue Bowhead Specialty Holdings broke out to new highs Thursday.
Allstate shares climbed more than 3% before paring gains. The stock edged above the 209.88 buy point of a cup-without-handle base on Monday but faded below it. Thursday, shares made a second move above the entry in above-average volume. The buy zone goes as high as 220.37.
In a boost for the breakout, the relative strength line is at new highs, according to IBD MarketSurge. Also positive, the Accumulation/Distribution Rating is B+, reflecting three straight up weeks in above-average volume leading up to the breakout.
Allstate Thursday reported estimated catastrophe losses for February of $92 million, or $73 million after tax. That's down sharply from January's loss of $1.08 billion, or $849 million after tax, due mainly to the California wildfires.
Total catastrophe losses for February year-to-date totaled $1.17 billion, or $922 million after tax, the company said. Policies in force rose 0.2% from January but down 0.3% year over year.
On Feb. 26, Allstate set a $1.5 billion share-repurchase program. That represented roughly 8 million shares at the time, or about 3% of shares outstanding.
Analysts expect Allstate earnings per share to fall 2% this year, but to rebound to an 18% increase next year, according to FactSet.
Bowhead Joins Allstate At New Highs
Bowhead Specialty rallied 4% in afternoon trading as volume swelled 175% above average. The stock topped the 37.81 buy point of another cup-without-handle base. The buy zone stretches to 39.70. Its relative strength line also made new highs.
Shares topped a resistance level around 35 last Friday, what could be viewed as an early entry.
Bowhead — which went public May 23 at an IPO price of 17 per share — has quickly emerged as the leader in the diversified insurance industry group. Its Composite Rating of 99 is the highest of 16 stocks in the group. Its Accumulation/Distribution Rating of A also leads the group.
Earnings growth surged 20% to 133% the past four quarters while revenue climbed 44% to 54%. The firm, which is this week's IBD Stock Analysis, focuses on small, niche and hard-to-cover risks.
Another insurance stock to watch is Brown & Brown. After breaking out past a 114.15 buy point on Feb. 25, the stock has been trading bullishly tight. Its chart shows a three-weeks-tight pattern that offers a 121.25 buy point.
Brown & Brown is the No. 3 stock in the insurance brokers industry group, which is now ranked No. 28 out of 197 groups. The stock's Composite Rating is a near-perfect 98. Its RS line is near highs.
Not Just Allstate: Insurance Sector Outperforms
IBD's Insurance sector is up 7.4% so far this year — one of only eight (out 33) sectors that are up for the year. Within the sector, Insurance-Diversified and Insurance-Brokers groups are ranked No. 27 and No. 28. No. 48 is life insurance.
SPDR S&P Insurance ETF is forming a cup-with-handle base with a 60.81 buy point.
Jump-Start Your Investing Skills With IBD Digital
Allstate stock has a 21-day average true range (ATR) of 5.2%, while Bowhead has a 3.27% ATR and Brown & Brown's is 1.75%.
The average true range is a metric available on IBD's MarketSurge that gauges the characteristic breadth of a stock's behavior. Stocks that tend to make large jumps or dives in daily action, the kind that can trigger sell rules and shake investors out of a stock, have a high ATR. Stocks that tend to make more incremental moves have lower ATRs.
In the current weak market, IBD suggests stocks with ATRs of 3% or lower. Also remember there is higher market risk right now.
