Trading Multi-Line Insurers Through a Government Shutdown

NEW YORK ( TheStreet) -- The U.S. economy faces a potential dual crisis as the calendar shifts to October. The Republicans in the House want to defund Obamacare, which begins to take effect on Oct. 1, and they want to attach reforms and budget cuts to raising the debt ceiling. Estimates are that the government will run out of money to pay its bills around Oct. 17.

Midnight tonight is the deadline for Congress to sign a budget deal. Without a compromise federal agencies will temporarily close and non-essential government workers would not report for work on Oct. 1.

Raising the debt ceiling is the second issue as the current borrowing limit is $16.7 trillion will run try on Oct. 17. In my opinion a debt ceiling is meaningless as it should include the $6 trillion debt and mortgages of Fannie Mae and Freddie Mac that the U.S. government now backs under conservatorship.

If the Federal Reserve is allowed to expand its balance sheet without limit, why can't the U.S. government issue unlimited debt? I guess the positive of a shutdown will be an automatic tapering of QE3 and QE4 as the Fed will not have any new securities to buy.

The Republicans and Democrats have drawn a line in the sand with regard to these issues and both sides need to give in a little to avoid a government shutdown on Oct. 1 and again around Oct. 17.

In my judgment a shutdown will not result in a default on U.S. debt, as the U.S. Treasury will still be collecting revenue and their top priority will be to pay off maturing securities and to make interest payments.

My focus today is profiling eight companies that are in the multi-line insurance industry, as these companies are not only affected by Obamacare, but also have tentacles in government programs such as Medicare.

My suggested strategy for investors in these companies is to reduce holdings and then add a buy-and-trade strategy around these core holdings to take advantage of market volatility as the market ebbs and flows in anticipation of, or in reaction to a government shutdown. All eight companies have hold ratings according to www.ValuEngine.com.

Note that all eight multi-line insurers are overvalued with seven overvalued by more than 20%. Seven of eight have gained more than 35% over the last 12 months. All are well above their 200-day simple moving averages which reflect the risk of reversion to the mean.

Reading the Table

OV/UN Valued: Stocks with a red number are undervalued by this percentage. Those with a black number are overvalued by that percentage according to ValuEngine.

VE Rating: A "1-engine" rating is a strong sell, a "2-engine" rating is a sell, a "3-engine" rating is a hold, a "4-engine" rating is a buy and a "5-engine" rating is a strong buy.

Last 12-Month Return (%): Stocks with a red number declined by that percentage over the last 12 months. Stocks with a black number increased by that percentage.

Forecast 1-Year Return: Stocks with a red number are projected to decline by that percentage over the next 12 months. Stocks with a black number in the table are projected to move higher by that percentage over the next 12 months.

Value Level: Price at which to enter a GTC limit order to buy on weakness. The letters mean; W-weekly, M-monthly, Q-quarterly, S-semiannual and A-annual.

Pivot: A level between a value level and risky level that should be a magnet during the time frame noted.

Risky Level: Price at which to enter a GTC limit order to sell on strength.

Cigna ( CI) ($78.04) is a provider of employee health care, life and disability benefits, employee retirement benefits and other investment services. The stock set a multi-year high at $84.68 on Sept. 16. My semiannual value level is $73.43 with a monthly risky level at $84.53, which was tested at the high.

CNO Financial ( CNO) ($14.46) is a holding company for a group of insurers including Bankers Life who markets health and life insurance products and annuities to the middle-income and senior markets. The stock set its multi-year high at $14.97 on Aug. 14. My quarterly value level is $10.68 with a semiannual pivot at $14.08 and monthly risky level at $15.28.

FBL Financial ( FFG) ($45.47) provides life insurance, annuities, property and casualty insurance to state farm bureaus and other rural areas of the country. The stock set a multi-year high at $46 on Sept. 16. My semiannual value level is $39.99 with a monthly risky level at $47.22.

Hartford Financial ( HIG) ($31.54) is a full service insurer that includes employee benefits and group retirement plans. The stock set a multi-year high at $32.60 on Sept. 18. My semiannual value level is $27.44 with a monthly risky level at $33.98.

Horace Mann ( HMN) ($27.74) provides insurance products to the educator market including retirement annuities and health insurance to school districts. The stock set a multi-year high at $29 on July 25. My semiannual value level is $25.88 with a monthly pivot at $27.89 with the ValuEngine one-year price target at $28.39.

Kemper Corp ( KMPR) ($33.83) is a full service insurer with products that include health insurance products for individuals, families and small businesses. The stock set a multi-year high at $36.55 on Aug. 2. The ValuEngine fair value lags at $25.66 with my monthly risky level at $37.31.

MetLife ( MET) ($47.58) provides insurance products to both individuals and corporations including; group and individual insurance, annuities, and retirement and savings products. The stock set a multi-year high at $51.56 on Aug. 1. My annual value level is $44.23 with a semiannual pivot at $47.30 and monthly risky level at $52.75.

Prudential Financial ( PRU) ($78.80) provides a full range of insurance products that includes, individual variable and fixed annuity products, and long-term care insurance. The stock set its multi-year high at $83.67 on Aug. 2. My annual value level is $66.73 with a semiannual pivot at $79.15 and annual risky level at $80.28.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.