[As promised, this is the second of two new buy alerts issued today so if you missed it, here is a link to this morning’s buy alert for Gilead]

TRADE INSTRUCTIONS
Date: December 15, 2016
Name: AmTrust Financial Services
Symbol: AFSI
Type: Open
Limit: Buy below $28.50

TRADE TARGETS
Holding Period: 3 months
Target Return: 10.5%
Annualized Return: 42%
Target Price: $31.50
Stop Loss Level: $24

COMPANY DESCRIPTION
AmTrust Financial Services, Inc. (AFSI) through its subsidiaries, provides specialty property and casualty insurance focusing on workers’ compensation and commercial package coverage for small business, specialty risk and extended warranty coverage, and property and casualty coverage for middle market business. Link to company website.

TRADE RATIONALE
Although you don’t normally equate the insurance industry with growth stocks, our Rapids Profits Matrix has identified AmTrust as the type of company that mutual fund legend Peter Lynch would have loved. That’s because its “PEG Ratio”, which compares the current price-to-earnings ratio to the average growth rate of earnings over the past five years, is only 0.83 (lower is better, anything below 1.0 is considered undervalued).

Even better, AFSI also scores very highly according to methodologies used by renowned value investors such as Ben Graham and Warren Buffett. That’s due to its ability to deliver above-average return on equity while growing earnings at a high rate. When you can do both of those things consistently AND your stock is trading at less than 9 times forward earnings, that’s usually the recipe for near term stock market outperformance.

I’ve been watching AFSI for the past month waiting for it to demonstrate technical strength, which it has over the past week. Unlike a lot of other financial sector stocks, it spent most of November below its 50DMA and just crossed over it a week ago. It came back down below its upper Bollinger Band two days ago, and now appears to be establishing the base for an new uptrend that I believe will push it into the low 30s within the next ninety days. To be clear AmTrust is not a “moonshot” type of stock that might double overnight, but it is the sort of reliable moneymaker that has delivered consistently solid returns for us in both up and down markets.

NOTE: AFSI is optionable