Are our blizzard fears overrated? Will February be tsunami-free? I'm neither a meteorologist nor a psychic, so I don't know, but the 160,000-member CAPS stock-picking community seems to think so. In the last week of January, the number of CAPS players picking insurance companies to outperform increased almost 250% over the historical average. Coupled with a 140% decrease in the number of top CAPS players making bearish calls, it looks like the community is expecting a gain for insurance stocks.
While the whole industry is now viewed more favorably, the community singled out five companies in particular as being strong candidates to outperform. Here's a closer look at what happened:
Alleghany is an insurance company that claims to focus on being conservative, but they are also willing to expand out of insurance when they see an opportunity. Sometimes compared to a young Berkshire Hathaway, Alleghany hit their second 52-week high in less than a month recently. Opinions differ about buying near a 52-week high, but the CAPS community may see nothing but higher prices going forward.
Amtrust Financial Services, Inc.
Unlike Alleghany, which is willing to diversify outside of pure insurance plays, Amtrust is much more narrowly focused, limiting themselves to property and casualty insurance. Identified by some of our internal analysts as the small-cap stock for the next millennium, the last few weeks have also seen Amtrust trading near 52 week highs.
OK, there is one company on this list that wasn't unexpected. While there has been no significant news for Berkshire recently, the CAPS community has long held it as one of their favorite stocks. And at a time when the whole insurance industry is gaining traction, it isn't surprising that Warren Buffett's flagship is in the mix.
While technically a reinsurer, Greenlight Capital is also the publicly traded portion of David Einhorn's value-oriented hedge fund, Greenlight Capital. Einhorn just released his fourth-quarter letter to investors, in which he takes Ben Bernanke to task for his handling of the economy over the last quarter. While the CAPS community may simply see an appealing price to enter a high-quality company, they may also be following Einhorn as he continues to make bets against the policies coming from the Fed.
American International Group
Unlike the rest of the companies suddenly favored by the CAPS community, AIG does not have a reputation for being either undervalued or well-managed. But on Jan. 19, it announced the selection of four major banks to manage the sale of the shares currently held by the government. While a more liquid AIG is still a speculative play, the community seems to think that the future may be looking brighter for the beleaguered giant.
Is the CAPS community right about the insurance industry? The CAPS community has a history of beating the market with their predictions, but that's no guarantee. Find out for yourself -- keep your eyes on all of these companies by adding them to My Watchlist, your free and customized hub for the news and numbers on the companies you care about. Just click below to start.
Chris Harris doesn't own shares of any company mentioned. Berkshire Hathaway is a Motley Fool Inside Value recommendation. Berkshire Hathaway is a Motley Fool Stock Advisor pick. The Fool owns shares of AmTrust Financial and Berkshire Hathaway. Motley Fool Alpha owns shares of Alleghany. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.