Friday, September 10, 2010

Update on the Allstate Trade: Caught an Upgrade from Citi (ALL)

On Sept. 1 we posted "A Contrarian Hurricane Earl Trade: Allstate Insurance (ALL)":
The stock is trading up a dime at $27.70.
This piece came out on August 3, 2010. In the meantime the stock has done nothing but ooze lower, so we decided to sit on the link.
Now, with Earl rumbling up the east coast it might be time for a trade....
We got lucky in that Sept. 1 was the day the current rally got some legs with the DJIA up 254.75.
On the other hand, ALL outperformed the general market that day and since. Here's the chart from BigCharts comparing ALL with the S&P 500:

Allstate is up 7.83% from the time of the call, the S&P is up 5.7% since the open on Sept.1
(I didn't happen to catch the level of the index at the time of the post, if ALL was up a dime at the timet, 9:34 am EDT, the S&P was probably up 2 or 3 tenths of a percent, shaving the move-to-date to 5.4 or 5.5%.)

Today the stock closed at $29.87 up 1.43% vs. .49% for the S&P. the outperformance coming on the heels of the Citi move, relayed here by Barron's Stocks to Watch Today blog:

Allstate: Citi Prefers to Travelers; $35 Target
Shares of Allstate (ALL) are up 43 cents, or 1.5%, today at $29.88 after Citigroup analyst Keith Walsh suggested picking up the shares instead of The Travelers (TRV), raising ALL to “Buy” and cutting TRV to “Hold.”
Walsh’s price target on ALL is $35.
Allstate has seen a dramatic drop in earnings expectations in the last two years, writes Walsh — in fact, the biggest drop in Street estimates among peers. Current Street estimates for 2011 EPS are 33% lower than they were in January of 2009, while 2010 estimates are 17% lower.
Walsh suggests that after that “reset” in earnings, Allstate is prepared to reverse its underperformance with Travelers. ALL shares have underperformed TRV this year, down 2.6% versus a fractional rise for TRV.
Shares of Travelers are down 23 cents, or half a percent, at $50.04.
Sometimes you get lucky.
[kids, don't try stuff like this on your own unless you have some knowledge of hurricane tracks, sea surface temperatures, wind shear, cash flows, buyback intentions, the broader market, turning points etc. -ed]