Brown & Brown (BRO) in Long-Term Buy Zone

Loading...
Loading...

Brown & Brown, Inc. BRO doesn't fall more than 20% very often. In the last decade, it happened in 2013, in 2020, and the stock is currently more than 20% off its 2022 high right now.

A declining stock price isn't a good reason to buy a stock on its own. It needs to be a good stock and there needs to be a solid reason (such as risk versus reward) for entering at a given time.

First, here are some reasons Brown & Brown is a quality stock:

  • It has handily outpaced S&P 500 returns over the last 10 years by 3.1% per year, on average.
  • Analysts expect 13.2% yearly EPS growth over the next five years.
  • EPS has increased 11.1% per year over the last five years.
  • Sales have increased 13.9% per year over the last five years.
  • The stock pays a modest dividend of 0.8% but the dividend amount has increased every year for a decade.

Brown & Brown is an insurance broker and makes money referring clients to insurance companies. It generally assumes no underwriting risk. 

BRO may be a good purchase now for a number of reasons.

Chart by TradingView.

  • Selling has slowed: Between early April and mid-May of 2022, the stock dropped more than 25%. It then rallied and dropped again between August and October. This decline was about 20% and took much longer. Since then the stock has been chopping around unable to break the original low set in June 2022 (it still could).
  • The stock has formed a large triangle pattern and is currently near the lower end of that triangle, which is also a support area. 

Slowing selling and the price near a support area present a favorable reward:risk scenario.

Purchasing between $55 to $52 (would require a further drop) provides an opportunity to buy with a stop loss near $50, which is several percent below the low of the triangle. This is a maximum downside risk of 10% (less if buying below $55). 

If the price can reach its former high of $73.47, that is about 35% upside from $55 and a 3.5:1 reward to risk. 

But this stock has been a steady riser, making it one of the top buy-and-hold stocks. The uptrends following prior 20% or greater declines in the last decade have rallied 278% and 144% before another 20% or greater decline. 

Disclaimer: The author doesn't currently hold a position, but may initiate one over the next two weeks.

Loading...
Loading...
Posted In: Trading IdeascontributorsExpert Ideas
We simplify the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...