What Makes Generali The Stock To Pick?

I don’t know about you folks, but when I think of insurance companies I tend to see them as cash cows. For starters, these massive corporations are in the business of making money – lots of it. Actuaries have worked out the risk and reward ratios so precisely that top insurance brokerages can turn a profit regardless. The key to being a successful insurance company is vested in the number of subscribers, the incoming premiums and the strategic growth plan. Provided the receipts exceed the payments, profitability is assured.

So let’s turn our attention to Generali (BIT:G) – an Italian juggernaut in the insurance realm.

Just recently it was reported that Generali is anticipating net profits for the year to increase considerably. Forecasts like this are important because they indicate direction of price movement. If you were buying standard shares, the size of that price movement would determine your profits – not so with binary options. Even if there is a limited price increase, you still realize maximum potential gain when you place call options on Generali over the short-to-medium term.

The reasons why I am anticipating share prices to rise are based on company sentiment and the results of a strategic plan of action that is actually paying off. Generali put a 3-year plan into action that is now turning the company’s fortunes around. The turnaround strategy has resulted in the highest Q1 and Q2 earnings for the company in 8 years. That’s a reason to get excited about this stock.

Here are some interesting facts about the recent performance of Generali:

• Premiums increased by 10.6% during Q1 and Q2, 2015
• Strong performance was recorded in Eastern Europe, France, Italy and Germany
• Massive asset sales and cost-cutting have boosted profitability
• Generali is now Europe’s third largest insurance brokerage

Assicurazioni Generali SpA 1 year price chart

Now let’s take a look at some interesting price movements on the chart. Above you can see the 1-year chart which shows a 52-week high of €19.21 and a low of €14.40. The stock is currently priced at €15.97 which is marginally higher than the 1-year low. The year-to-date return is -2.71% but the 1-year return is 6.91%. Rewind precisely 1 month and you’ll see that there was a surge in the stock price during July. This is when news of the company’s turnaround strategy broke and investor confidence was buoyed. The sharp decline at the end of August is attributed to the China factor – and most stocks and indexes faced a similar price correction. The company’s market capitalization is significant at €24.863 billion with an EPS of €1.31.

The Big Tip

But I would also be keeping my eye on RSA Insurance – a UK insurance company that is being bid on by Zurich Insurance for £5.6 billion. Guess who the rival bidders are? Generali and Allianz. If Zurich Insurance falls through and Generali comes up trumps, this will boost the stock price and make traders a whole lot of money. Zurich is however offering 550p and Generali’s UK operations are small by comparison. It’s definitely worth keeping your eye on!

Now let’s take a look at the MACD and signal lines for Generali SpA. Recall that when the signal line is above the MACD, it is time to sell the stock and when the MACD is above the signal line it is time to buy the stock. Between the 11th and 12thAugust these lines crossed over, meaning that the stock went bearish. The Moving Average Convergence Divergence (MACD) is a useful resource in determining trends in stocks and I recommend using it as often as possible. It gives you a heads up about when to sell and when to buy the stock.

By July, the CEO of Generali was able to increase the company’s capital by 200% without any additional costs being incurred on shareholders. This was reflected in the company’s ‘proforma economic solvency ratio’. Now let’s consider for a moment that the interest rates – the return you get on money you invest is exceptionally low in Europe at the moment. That means that there is very little to be gained by investing in interest-bearing accounts. Nonetheless, Generali’s Q2 operating profit spiked to €1.45 billion. Additionally, the cost-cutting measures adopted by this company will save an estimated €250 million per annum through 2018, with dividend payouts in the region of €5 billion. These are positive developments that will encourage traders and investors to go long on the stock.