Following a strong performance in October, markets have built on the momentum into November as better-than-expected inflation data has caused bond yields to fall. Today’s release of the October producer price index figures came in less than expected, bolstering the case that inflation has seen a peak. In turn, equities have put together a short-term rally as they attempt to gain back some of the ground lost earlier in the year.
Also boosting the bull case for stocks is the fact that volatility has been trending downward over the past month. The VIX Index, commonly referred to as the “fear gauge”, has lost nearly 30% of its value over the past month. The descent in the widely-followed volatility indicator speaks to probabilities about narrower price ranges in the short-term, as opposed to wider ranges that are generally associated with higher market volatility.
Still, various concerns remain for a global economy that has been plagued by slowing growth this year. Just recently, the International Monetary Fund reduced its global growth forecast for 2023 from 2.9% to 2.7%. On a brighter note, the market is forward-looking, and much of the associated downturn in the economy was likely priced in with the drop in equities in previous months.
Even if volatility rears its ugly head again in the near future, one way we can sidestep it is to target the pockets of the market that have shown immunity to the downside moves. The iShares U.S. Insurance ETF IAK fits the bill, as the group has made consistently higher highs this year while the market has whipped back and forth. IAK seeks to track the investment results of an index composed of U.S. equities in the insurance sector.
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As we can see, the iShares U.S. Insurance ETF has displayed relatively little volatility this year as opposed to most stocks and funds. IAK recently made a new 52-week high and is a Zacks Rank #1 (Strong Buy) ETF.
Let’s take a look at a top position within the IAK ETF that accounts for over 5% of the fund holdings. This company is part of the Zacks Insurance – Brokerage industry group, which currently ranks in the top 37% out of approximately 250 industries. Targeting individual stocks contained within the top industry groups provides a constant ‘tailwind’ to our investing success.
Arthur J. Gallagher & Co. (AJG)
Arthur J. Gallagher & Co. provides insurance brokerage, consulting, and administration services globally. The company offers retail and wholesale insurance brokerage operations as well as marketing, underwriting, and policy issuance to business and organizations. AJG provides its services through a network of correspondent insurance brokers and consultants.
AJG has built an impressive track record in terms of earnings surprises, surpassing estimates in each of the last four quarters with an average 2.75% beat. Last month, the insurance firm reported Q3 EPS of $1.72/share, a +2.99% surprise over the $1.67 consensus. AJG shares have advanced more than 12% this year while the market encountered substantial volatility.
Image Source: Zacks Investment Research
Analysts are bullish on the fourth quarter for AJG and are projecting EPS growth of 58.16% to $1.55/share relative to the same quarter last year. Keep an eye on this insurance giant as the stock continues to outperform.
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This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
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Arthur J. Gallagher & Co. (AJG): Free Stock Analysis Report
iShares U.S. Insurance ETF (IAK): ETF Research Reports
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