The greatest thing about the stock market is that, barring a total meltdown, there is always a sector or two bucking the trend. When some “event” rocks the market, not all sectors react the same way.
So when the United States and China traded tariffs this past weekend, traders panicked and sold almost everything.
Almost everything.
These sorts of mini-market panics let us see which stocks have the best demand from investors because they are the last stocks that get sold. In other words, investors try to raise cash from their weakest or most speculative stocks first and then move on down the line.
What’s left are the stocks they really do not want to sell unless they absolutely, positively have to sell them.
That indicates true demand for those stocks. And typically, when the market gets over its fears, these stocks will lead the pack on the rebound.
Technicians call that relative strength. Some stocks beat the market during rallies. Others resist declines and fall less than the market. These types of stocks are strong relative the overall market.
And one of the strongest sectors right now is insurance, including insurance brokers, property and casual insurers, life insurers, and full-line insurers.
That’s making one stock in the sector a must-buy right now.
Not only is it still getting bullish signals despite the trade war – we even think it’s nearly the perfect time to buy and hold for the long term.
A “Best in Breed” Stock to Buy
Money Morning Quantitative Specialist Chris Johnson has his eye on Brown & Brown Inc. (NYSE: BRO), an insurance agency, wholesale broker, and insurance service company.
Johnson runs screens on the market each day, and his “Best in Breed” filter turned up this gem right after the market tanked. Brown & Brown has the potential to run nicely higher after the current trade tensions end – and even if they don’t.
Don’t be a day trader here. This is not a quick hit-and-run proposition. It is a longer-term buy that is now giftwrapped for us at lower prices. We don’t want to pit ourselves against the program traders and big Wall Street trading desks that try to outguess the news and move in and out of the market in minutes – or seconds.
What we do want to do is take advantage of what the market gives us and look at stocks resisting the decline that have good stories and strong charts.
That’s what Brown & Brown gives us.
The stock closed Tuesday at $31.36, and Johnson thinks it would make an excellent buy below $31 and ideally at $30.50. That’s the bottom of the “gap” seen on April 23, when the stock jumped higher on news that the company beat its Q1 earnings and revenue estimates.
A gap is simply a place on the chart where the stock did not trade. Demand that day so overwhelmed supply on the earnings news that price had to jump higher instead of smoothly trending.
These are powerful levels on the charts, and in this case, the gap provides a solid level of support where buyers are likely to jump back in.
But don’t be greedy either. The $31 level is still a good place to get in, should the market firm up a bit first.
Source: Money Morning