Shares of supplemental insurance company Aflac Incorporated (NYSE:AFL) jumped on Wednesday after the company raised its 2015 earnings estimates. AFL stock remains one of my favorites in the insurance space, and I think it looks good in all time frames, in both absolute and relative terms versus the broader insurance industry.
My focus in this column for the most part is around nearer- to intermediate-term opportunities in markets. However, when a compelling enough opportunity arises in more longer-term time frames, I feel compelled to share it.
AFL stock currently qualifies as such an opportunity as a result of structural, fundamental and technical factors.
For its second quarter, Aflac reported lower revenue and earnings on a year-over-year basis, which was in part due to a weaker Japanese yen (Aflac has meaningful revenue from Japan). Nevertheless, AFL upped its full year earnings per share guidance to a new range of $5.88 to $6.17, which is higher from the previous range of $5.74-$6.15.
AFL Stock Charts
AFL stock has largely underperformed the broader insurance sector if we measure it versus the SPDR S&P Insurance ETF (NYSEARCA:KIE). Note on the below chart the relative weakness; however, with Wednesday’s move lower, AFL stock (in relative terms) bounced off the black support line.
Keeping the bigger-picture relative weakness of AFL stock in mind, looking at the multiyear weekly chart of Aflac shares in absolute terms shows a stock that is visibly coiling up to push higher. Note the well-established series of higher lows (blue bubbles) is pushing against horizontal resistance that stretches back to the year 2008. Since late 2013, the stock has largely been stuck in a constructive consolidation phase that in late 2014 found good horizontal support (red dotted line).
From a momentum perspective, Aflac stock is also looking better, which is to say that plenty of upside potential remains through a six- to 12-month horizon.
On the daily chart, we see that that while AFL stock remains within the confines of its bigger picture consolidation range, the stock managed to push back above its 200-day moving average (red line) in February and has held above there since. The upper end of the trading range since the April/May highs (blue box) is once again being tested with Wednesday’s 3.55% rally.
From a structural perspective, the financial sector — which includes insurance companies — is poised to play catch-up with the broader stock market in the coming six to 12 months, which also plays in favor of AFL stock.
Active investors could thus look to initiate partial long positions around current levels with a six- to 12-month upside target in the $75-$80 area.
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Successful trading and investing starts with a plan. Download Serge’s essential trading plan, The Essence of Swing Trading e-book. As of this writing, he did not hold a position in any of the aforementioned securities.
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