This Stock is a Strong Candidate for Your Long-Term Portfolio

It only takes three things to get me very excited about a stock market opportunity: sleeper stocks pushing toward yearly highs, technical price breakouts, and corporate spinoffs. Each one of these items can be signaling bullish times ahead for the shares.

Combine all three signals with a 148-year-old, $52 billion market cap behemoth boasting over 90 million customers in more than 60 nations, and it paints a bright future for the shares.

First, let’s take a closer look at each of the three bullish factors at work then dig into the specifics of the opportunity.

[ad#Google Adsense 336×280-IA]Sleeper stocks are companies holding little interest to short-term, fast money type stock market investors.

They tend to be slow movers but can make great long-term investments.

These stocks are often from old, boring industries such as insurance.

When a sleeper stock is observed pushing toward new highs, it may be signaling more than just a short-term move based on price alone.

That’s because it often takes a seriously bullish fundamental catalyst to trigger a move higher in a sleeper stock.

Next, a technical breakout occurs whenever the share price moves above a resistance level on a price chart. Many technical analysts consider the 200-day and the 200-week simple moving averages the most important resistance levels on the graph. When sleeper stock shares break out above both the 200-day and 200-week simple moving averages, it may be signaling major, enduring buying pressure.

Finally, spinoffs are often hugely bullish events for both the parent and spinoff company. A spin-off is when a company jettisons a division or section to become its own, independently operating company. The reason spinoffs are bullish is the fact that they allow both the parent and spinoff company to better focus on their core competencies, thus increasing core value for both firms.

Numerous studies have proven that spinoffs are likely to outperform the overall stock market. One study, performed by Credit Suisse in 2012, focused on 17 years of spinoffs in the U.S. stock market. It discovered that, on average, spinoff companies outpaced the S&P 500 by 13.4% in the first 12 months, while parent’s outperformed the index by 9.6%.

Big Gains Ahead For This Blue Chip

The sleeper company exhibiting these bullish factors right now is MetLife (NYSE: MET). MetLife is the holding corporation for Metropolitan Life Insurance Company. It was founded in 1868 and boasts over 90 million customers in more than 60 countries. Employing over 66,000, and a market cap of over $52 billion, it was ranked by Investopedia as the world’s largest life insurance company in 2013.

Earlier this month, MetLife announced plans to spin off a large chunk of its U.S. retail life insurance business into another company named Brighthouse Financial. The spinoff business accounts for 20% of MetLife’s total earnings and 50% of its U.S. retail earnings.

I can hear you now saying “What?! How can this be beneficial to the company if it is giving away a huge source of earnings!”

Well, it will likely be very helpful for MetLife — after the spinoff, the remaining businesses still owned by MetLife will contain the core value of the company. That includes businesses such as its corporate benefit funding division (CBF) and international segments, which are expected to produce a more attractive return and cash flow picture for MetLife over the long term. Spinning off the U.S. retail business will provide MetLife the resources and focus it needs to grow these other divisions.

The spinoff is expected to take place in the first quarter of 2017, beginning with a divestment of 80.1%, and the remainder of the business trickling out over the next five years. Deutsche Bank reports that it expects MetLife will still have $2.2 billion in capital equity after subtracting the estimated $3.5 billion stock dividend (generated by the spinoff of Brighthouse) and the $3 billion of other separation items and debt repayment expected until 2018. These are all bullish metrics for the parent company.

At the same time, Deutsche Bank states that Brighthouse will have a strong capital position with a very low likelihood of needing any additional funds from MetLife. In others words, the divestment will not be a financial drain of MetLife.

In fact, some analysts are estimating over $2 billion of MET stock buybacks annually in 2017 and 2018, further making a bullish case for the shares.

Despite the bullish catalysts, investors should keep in mind that there is a continuing major court battle over the proper designation for MetLife. A Federal judge ruled to rescind the company’s “systemically important financial institution” (SIFI) status, which requires MetLife to conform to special regulations by the Federal Reserve, but this decision is currently under appeal by the Treasury Department. If MetLife’s SIFI status is changed, it should free up capital that can be used to enhance value.

The technical picture of MetLife shares supports the bullish thesis on the both the weekly and daily chart. The daily price chart is trading solidly above the 200-day simple moving average with price building a base in the $47.00 per share zone. Zooming out to the weekly chart reveals that price just broke out above the 200-week simple moving average, setting up the stock to be an ideal technical long candidate.

Risks To Consider: There continue to be considerable headwinds to the U.S. life insurance business, including ultra-low interest rates, the overall equity market and new Department of Labor rules that potentially result in decreased annuity sales.

Action To Take: The bullish catalysts at work combined with the 3%-plus dividend yield make MetLife a strong candidate for your long term portfolio. Also, once available, shares of the Brighthouse Financial spinoff should create an excellent opportunity for investors.

Buy MET on a breakout of $48.00 per share with first stops at $45.23 per share. My target price is $57.00 per share.

— David Goodboy


Source: Street Authority