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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


October 22nd 2010 Progressive
NYSE Symbol: PGR
Industry: Insurance
Price as of 10/22: $20.97

The third quarter earnings keep coming in better than expected which is a good omen for the rest of the year. However, we are probably due for a correction or at least a pause in the run up that started September 1st. One sector that continues to underperform is the financials. Bank of America is taking the brunt of the punishment due to the mortgage securitization mess. Long term, Bank of America remains very attractive. This past week Goldman Sachs, PNC Bank, US Bancorp, Wells Fargo, Citigroup, and Bank of America all reported better than expected earnings. This week we'll feature a financial stock that specializes in insurance in particular auto insurance. The featured stock of the week is Progressive. Progressive has performed well over the last several years reporting better than expected earnings two weeks ago. This past week the company announced a one-time dividend of a $1 a share or 5% for shareholders that buy the stock before the middle of December. The stock may perform well between now and then as investors anticipate this one-time dividend. Investors can also take advantage of the low tax rate before President Obama eventually hikes it in the coming years.
Two weeks ago Progressive, the nation's fourth-largest auto insurer, posted net income of $261.6 million, down 3% from $269.9 million in the same quarter last year. Earnings per share remained at 40 cents a share beating consensus estimates of 37 cents a share. The quarterly results were boosted by higher revenues. Progressive wrote $3.7 billion worth of premiums in the quarter compared with $3.55 billion a year ago. Investment gains at Progressive hurt results falling 31% to $26.9 million compared with $38.8 million in the third quarter last year. Progressive said September income dropped 18% to $81.9 million, or 12 cents a share, compared with $100 million, or 15 cents a share, in the year-earlier month, but sales last month still grew 12% to $1.15 billion, driven by direct auto sales.
Progressive should perform well as the economy and auto sales eventually pick up. Even without the one-time dividend, Progressive's stock remains cheap. Currently the stock is trading for 0.9 times sales, 2 times book value, and 13 times earnings. But as mentioned the big benefit with Progressive's stock is this one-time 5% dividend coming in December. Investors looking for income might want to look at Progressive particularly since President Obama will eventually raise taxes as soon as next year.