Unum Group provides financial protection benefits, i.e., insurance. The company is listed on the NYSE and its main areas of operation are the US, UK and Poland. The stock dipped below $10 a share during the Covid-19 panic of March, 2020. Investors brave enough to have bought near those levels have multiplied their money by roughly five by now as the stock approaches $50.
However, we bet more people see Unum as a good investment now than did back in the spring of 2020. The economy seems to be headed for a soft landing and Unum is expected to earn $7.50 per share in 2023. It takes a lot less courage and emotional discipline to arrive at a positive conclusion for an investment when all is well than when everything seems to be falling apart. Alas, the seeds for the best returns are planted in a crisis.
So is Unum stock a good bet just under $50, or is it time to reduce exposure in this otherwise strong insurer? Fundamentally speaking, the stock trades at a bargain P/E ratio of just 6.5. However, insurance is a notoriously cyclical industry. It is not unusual for insurance companies to look cheap near the peak of the cycle. After all, that’s when their profits are the highest. So instead of relying on the seemingly low valuation, we’d like to see what Elliott Wave analysis can tell us.
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The daily chart of Unum reveals the stock’s entire recovery from $9.58 in 2020 to $49.50 so far. Its structure can easily be seen as a five-wave impulse, marked (1)-(2)-(3)-(4)-(5). Note that two lower degrees of the trend are also visible within wave (3). According to the theory, this pattern should be followed by a three-wave correction in the opposite direction.
Wave (5) has already exceeded the top of wave (3) and we can expect a notable bearish reversal as soon as it is over. The bears would then be free to drag Unum stock back down to the support near $30 a share. Assuming the reversal takes place near $50, that would be a 40% decline. So instead of adding UNM, we’d just stick to the 17 positions already in our stock portfolio.
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