It looks like global insurance giant QBE Insurance Group Ltd (ASX: QBE) might have suffered from a bout of end of financial year (EOFY) 'window dressing' or in other words tax-loss selling.
With the stock suffering a significant fall in late 2013, nearly any shareholder who has bought stock in the past few years is likely underwater on their investment at present. It's not a pleasant place to be and likely it has led to a number of shareholders losing faith and deciding to lock in a capital loss on their investment and move on.
So far, the stock has gained 6.6% since the start of the new financial year, compared with a gain of 3.6% from Insurance Australia Group Limited (ASX: IAG) and a 2.5% gain in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). Here are three reasons to be positive that the momentum can continue.
- The overhang of sellers which dragged the stock down from around $13 per share in April to a recent low under $11 has possibly now been exhausted with the closing of the financial year. With the stock still trading near 52-week lows and on a forecast price-to-earnings ratio of just 11.3 (according to data from Morningstar) QBE may find valuation support at these levels.
- US interest rates going up, not down. US interest rates can't go any lower and there is increasing chatter that the US Federal Reserve will begin to raise rates in 2015. QBE has been a major loser from the low interest rate environment both in the USA and Europe – higher rates will provide a major boost to income.
- Cost savings to flow through. QBE's new management team has been busy streamlining the insurer and cutting costs. Big cost savings are expected from this program and the benefits to the bottom line should become apparent in the coming reporting season.
