Why Insurance Stocks Belong on Your March Watch List

Hartford Financial Services Group Inc (HIG) and Torchmark Corporation (TMK) could be headed for more gains this month

Mar 1, 2017 at 11:41 AM
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As the month of March kicks off with a bang for the broader equities market, we've been examining stocks and exchange-traded funds (ETFs) that have strong histories of March returns. Among the top ETFs for the month is the SPDR S&P Insurance ETF (KIE), which, according to data from Schaeffer's Senior Quantitative Analyst Rocky White, has finished March higher for seven of the past 10 years, averaging a 3.9% gain. Notably, the insurance sector also lands close to the top of our internal Sector Scorecard, suggesting appealing opportunities exist for contrarian bulls. After we take a closer look at KIE, we'll dig down further in the sector to see how the shares of two individual stocks -- Hartford Financial Services Group Inc (NYSE:HIG) and Torchmark Corporation (NYSE:TMK) -- are faring.

The SPDR S&P Insurance ETF Could Have Room to Run

The insurance sector has been full of strong performers lately, with 74% of the 23 components we track sitting above their 80-day moving averages, and an average year-over-year return of 40%. KIE has been climbing the charts for the past 12 months, up 32.2% at $88.67 -- and just off an all-time best of $88.71 -- with the 40-day trendline providing support since before the shares took off after Election Day. But while short interest on the SPDR S&P Insurance ETF is relatively low on an absolute basis, these bearish bets have risen by 47% during the two latest reporting periods, after panning 10-year lows in recent months. Simply put, there may still be buying power on the sidelines, waiting to give the outperforming ETF a boost.

KIE insurance etf chart

Hartford Financial Services is Offering an Options-Buying Bargain

Turning to individual stocks, HIG is on the rise today, up 1.7% at $49.71, after earlier notching an eight-year high of $49.83. The shares have found an ally in their rising 10-day moving average, after a recent pullback to support at the $47 level -- home to last April's peak. Meanwhile, options traders seem to be betting on more highs ahead.

Amid relatively light absolute volume, speculators purchased 2.65 HIG calls for each put over the past 10 days at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- a call/put volume ratio near the top quartile of its annual range. Options traders could be taking advantage of well-priced premiums at the moment. With a Schaeffer's Volatility Index (SVI) of 18% and a 30-day at-the-money implied volatility of 16.9% -- in the 11th and 4th percentiles of their respective 12-month ranges -- Hartford Financial Services Group Inc's short-term options are pricing in unusually low volatility expectations.

Analyst Attention Could Send Torchmark to Higher Highs

TMK tapped a record high of $78.93 this morning, and was last seen up 1.3% at $78.53, after the company hiked its dividend by 7%. The stock has tacked on almost 48% year-over-year, with the frequent aid of its rising 50-day moving average. But that hasn't been enough to win favor from the brokerage bunch.

At present, every one of the 11 analysts following Torchmark Corporation maintains a rating of "hold" or worse. Plus, the average 12-month price target is seated at a discount to current trading levels, at $72.78. While a round of overdue upgrades and/or price-target hikes could easily keep the stock's rally alive, however, traders should note that TMK's 14-day Relative Strength Index (RSI) of 77.3 is well into overbought territory, indicating the shares may be due for a breather.

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