Should You Buy QBE Insurance Shares at These Prices?

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What does QBE do?

QBE Insurance Group Ltd [ASX:QBE] is a global insurance company. Its focus is on general insurance and reinsurance.

What’s happening to QBE’s share price?

Today, QBE reported better-than-expected results for the 12 months to 31 December 2016. All the insurance metrics showed an improvement. As a result, the share price was up nearly 4.5% at one stage during the day.

What now for QBE?

QBE is slowly rebuilding its business after delivering poor earnings growth for the past few years. That has largely resulted from two factors: overpaying for past acquisitions (resulting in write-downs), and weaker earnings from investment markets.

You see, insurers earn a profit in two different ways. Firstly, from underwriting, or insuring against, risks. Secondly, from investing the money received from policyholders before paying it out.

It might be years before an insurer has to pay out against an insurance policy. In the meantime, they invest the money and generate a return on it.

With interest rates at historic lows over the past few years, QBE’s returns from this part of the business have been falling too.

As you can see from the chart below, QBE has been in a long-term bear market. After peaking at $35 per share in 2007, the shares fell below $10 at the end of last year.

QBE Insurance Share Price Feb 2017

Source: BigCharts

Buying support quickly came in. Now, with the business improving, the long-awaited turnaround could be underway. In early trading today, the share price hit its highest level since late 2015.

In saying that, the share price came off the boil this afternoon. But new highs in the coming weeks would confirm that QBE’s global insurance business is recovering from years of underperformance. In that case, QBE could be a good long-term holding at these levels.

Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.

If you’d like to know more, click here.

Greg Canavan
Editor, Money Morning

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Greg Canavan is a Feature Editor at Money Morning and Head of Research at Fat Tail Investment Research.

He likes to promote a seemingly weird investment philosophy based on the old adage that ‘ignorance is bliss’.

That is, investing in the Information Age means you have all the information you need at your fingertips. But how useful is this information? Much of it is noise and serves to confuse, rather than inform, investors.

And, through the process of confirmation bias, you tend to read what you already agree with. As a result, you often only think you know that you know what is going on. But, the fact is, you really don’t know. No one does. The world is far too complex to understand.

When you accept this, your newfound ignorance becomes a formidable investment weapon. That’s because you’re not a slave to your emotions and biases.

Greg puts this philosophy into action as the Editor of Crisis & Opportunity. As the name suggests, Greg sees opportunity in a crisis. To find the opportunities, he uses a process called the ‘Fusion Method’, which combines traditional valuation techniques with charting analysis.

Read correctly, a chart contains all the information you need. It contains no opinions or emotion. Combine that with traditional stock analysis and you have a robust stock-selection strategy.

With Greg’s help, you can implement a long-term wealth-building strategy into your financial planning, be better prepared for the financial challenges ahead, and stop making the basic, costly mistakes that most private investors do every time they buy a stock.

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