In the past I have focused on two strategies for my stock investing. The original one that I started with is what I would call “Quantitative, Fundamental, Technical”. It focused on finding an industry sector that is performing well (Quantitative analysis). From there I would start to dig into the best company fundamentally within that sector and then look at the technicals as well. I would rank those companies that paid a dividend and also were profitable on 16 different aspects and then purchase shares in the one that came out with the best overall rating.
The second investing style that I started utilizing was strictly technically based. I would look at short term, medium term, and a long term moving averages and then select those over different industries to diversify this portfolio. To simplify this as much as I can to write this here is as follows: I would watch for when the stock price was above the short term moving average and where the medium term had just recently crossed above the long term moving average.
My new system is strictly focused around the fundamental analysis of the business and starts with the P/E ratio. If you look at the P/E ratio of Unum Healthcare, it is currently trading at 9.63 times their trailing earnings and 8.19 their forward earnings. I’m looking at their historical average P/E ratios for the 5 and the 10 year terms, which are 15.12 and 10.88. That puts Unum at 37% below their 5 year average P/E and 12% below the 10 year average. Other positives in the fundamental valuations of the company are the P/B ratio where typically these companies are bought at values around 30% above their book value, Unum currently trades at 5% below their book value so if they were to be bought out you would look for a significant premium to be attached to a bid for their company.
Now for some tough spots that we have noticed on the fundamental side. The current price is at 71 times the cash value that they have on hand. The cash amount will be growing again though as they only trade at 8 times their free cash flow amount.
They do pay a decent dividend of 2.2% and over the past few years they have increased the annual dividend rate by 3.67% over the last 3 years and 9.14% over the last 5 years. They have plenty of room to continue to grow that dividend as well, since their payout is only 20% of their current earnings. If you are interested in the dividend they will be going ex-dividend on 4/27/16. They are also buying back stock right now, which some people are not necessarily a fan of but I like that they are returning value to their shareholders. The current closing price is right at the price where they averaged their buyback price from early 2015 at 33.75 a share.
Just this month they have entered into an agreement to purchase Starmount Life Insurance Company that they expect to be accretive by 2017. This adds more potential revenue to the top line very quickly.
Lastly, and not that it even entered into my decision when purchasing this company I see that the company is trading above it’s 20, 50, and 200 day moving averages. The 20 day and 50 day are both trending up, and will likely catch the 200 day soon. It may be poised for a rally but if you put in a nice 20% stop loss this stock has the potential to run for quite some time going forward.
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