Trade-Ideas LLC identified

XL Group

(

XL

) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified XL Group as such a stock due to the following factors:

  • XL has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $74.8 million.
  • XL has traded 2.1 million shares today.
  • XL is trading at 1.53 times the normal volume for the stock at this time of day.
  • XL crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on XL:

XL GROUP Public Limited Company, an insurance and reinsurance company, provides property, casualty, and specialty products to industrial, commercial, and professional firms; and insurance companies and other enterprises worldwide. The company operates in two segments: Insurance and Reinsurance. The stock currently has a dividend yield of 2.1%. XL has a PE ratio of 1. Currently there are 9 analysts that rate XL Group a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for XL Group has been 2.1 million shares per day over the past 30 days. XL Group has a market cap of $11.4 billion and is part of the financial sector and insurance industry. The stock has a beta of 0.94 and a short float of 2.1% with 2.70 days to cover. Shares are up 11.7% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com

Analysis:

TheStreet Quant Ratings

rates XL Group as a

buy

. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, notable return on equity and solid stock price performance. We feel its strengths outweigh the fact that the company has had sub par growth in net income.

Highlights from the ratings report include:

  • XL's very impressive revenue growth greatly exceeded the industry average of 15.8%. Since the same quarter one year prior, revenues leaped by 69.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Although XL's debt-to-equity ratio of 0.23 is very low, it is currently higher than that of the industry average.
  • Net operating cash flow has increased to $489.00 million or 30.60% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of -13.53%.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Looking ahead, unless broad bear market conditions prevail, we still see more upside potential for this stock, despite the fact that it has already risen over the past year.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Insurance industry and the overall market on the basis of return on equity, XL GROUP PLC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.

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