Is It Safe? Travelers Offers No Risk, No Reward

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For a video on Travelers featuring Jim Cramer, click here.

Travelers(TRV Quote) received word this week that it will join the select group of 30 companies in the Dow Jones Industrial Average as the property and casualty insurer's one-time parent, Citigroup(C Quote), exits.

While Travelers is a financial company, it has more in common with American International Group(AIG Quote), which was removed last year. So it's really a swap of insurers.

By being part of the Dow, Travelers will now be viewed as a solid stock. But is it a buying opportunity?

Perennially profitable, Travelers rarely disappoints. Still, last year's net income of $2.9 billion was significantly lower than 2007's $4.6 billion. First-quarter earnings of $662 million indicate that this year also will be a challenge. Policy reserves have shrunk by $3.7 billion, or 5%, since December 2007, and cash and equivalents have dwindled by $26 million, or 26%. Those declines aren't unusual for insurers in such a recession, though they indicate that Travelers isn't immune to the financial crisis.

Interestingly, Travelers is trading at a price-to-book ratio of 93%, leaving room for growth, especially with Allstate(ALL Quote) at 115%, MetLife(MET Quote) at 121% and Prudential(PRU Quote) at 130%.

Travelers' stock has fallen 13% during the past year, less than half as much as the S&P 500 Property and Casualty Insurance Index. The shares have risen 5% since the announcement that the company will be included in the Dow, so it may continue to benefit from a "halo" effect.

Despite the stock's gain, Travelers offers one of the lowest price-to-trailing-earnings-per-share of any insurer, at 9.6. With Centene(CNC Quote) and Unum(UNM Quote) trading at 10.4 and 10.5, respectively, Travelers is clearly underpriced.