Why Chubb Stock Wilted on Wednesday

Key Points

• The company did well in its second quarter, but it suffers from being in an unpopular category.

• Many market players are disinterested in "defensive" stocks just now.

• 10 stocks we like better than Chubb ›

Chubb (NYSE: CB) stock seemed to be primed for a good Wednesday on the market after it reported quarterly results, however, investors had other plans for the storied insurance company. While it beat analyst estimates for its latest quarter, some of its fundamentals raised concerns. As a result they collectively traded out of the stock, leaving it with a more than 4% loss in price on the day around 3 p.m. ET.

Negative reaction to positive developments

After market hours Tuesday, Chubb published its second-quarter results. These revealed that the company's net premiums written -- considered something of a top-line metric by insurance sector investors -- rose by 6% year-over-year to just shy of $14.2 billion.

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Net income was slightly under $3 billion, up from the year-ago quarter's $2.2 billion. The company's "core operating income," i.e. under non-GAAP (adjusted) standards, rose to $6.14 per-share from the year-ago profit of $5.38.

On average, analysts tracking Chubb stock were estimating the company would book revenue of $14.16 billion, and core operating income of $5.96 per share.

In its earnings press release, management attributed the improvements to strength in various markets. It quoted CEO Evan Greenberg as saying that "most all of our businesses and regions of the world contributed to record quarterly results, illustrating the distinctive, diversified nature of our company."

The trend is against it

The market's reaction to Chubb's generally fine quarter likely had more to do with external factors than dissatisfaction with the company. Many investors are turning away from defensive stocks these days, and that includes sturdy insurance titles like Chubb. In such an environmentm the company probably needed to deliver a spectacular quarter, rather than one that was "merely" above average in order to impress investors.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.