Brown & Brown, Inc. (NYSE: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.
