Storm The Castle: XL Group (XL)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified XL Group ( XL) as a "storm the castle" (crossing above 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 $59.2 million.
  • XL has traded 349,932 shares today.
  • XL is trading at 2.34 times the normal volume for the stock at this time of day.
  • XL crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on XL:

XL GROUP Public Limited Company, through its subsidiaries, provides insurance and reinsurance coverages to industrial, commercial, and professional firms, as well as insurance companies and other enterprises worldwide. The stock currently has a dividend yield of 2.1%. XL has a PE ratio of 8.4. Currently there are 8 analysts that rate XL Group a buy, 1 analyst rates it a sell, and 3 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 $8.4 billion and is part of the financial sector and insurance industry. The stock has a beta of 1.17 and a short float of 1.6% with 2.39 days to cover. Shares are down 4.6% year-to-date as of the close of trading on Wednesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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 largely solid financial position with reasonable debt levels by most measures, notable return on equity, impressive record of earnings per share growth, compelling growth in net income and increase in stock price during the past year. We feel these strengths outweigh the fact that the company shows low profit margins.

Highlights from the ratings report include:
  • Although XL's debt-to-equity ratio of 0.20 is very low, it is currently higher than that of the industry average.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. 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.
  • Despite the weak revenue results, XL has outperformed against the industry average of 19.1%. Since the same quarter one year prior, revenues slightly dropped by 1.9%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • XL GROUP PLC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. However, we anticipate underperformance relative to this pattern in the coming year. During the past fiscal year, XL GROUP PLC increased its bottom line by earning $3.62 versus $2.10 in the prior year. For the next year, the market is expecting a contraction of 17.1% in earnings ($3.00 versus $3.62).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly underperformed compared to the Insurance industry average, but is greater than that of the S&P 500. The net income increased by 269.3% when compared to the same quarter one year prior, rising from $81.45 million to $300.78 million.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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