July 27, 2007


This Paris-based financial giant offers an array of "financial protection" products and services, including life, health, and property insurance and asset management for individuals and businesses. The company, which has a $91.1 billion market cap, also has an international segment that deals mostly with reinsurance, and is involved in banking activities in France and Belgium. AXA has about 52 million clients in 47 countries around the world, and operates primarily in the North American, Western European, and Asia Pacific markets.

AXA gets approval from the strategies that I base on the writings of Peter Lynch and James O'Shaughnessy. With a growth rate of 31.43 percent (based on the average of the three- and five-year earnings per share figures), my Lynch-based model considers AXA a "fast-grower, Lynch's favorite type of investment. One of the most important tests of a stock for Lynch is its P/E/Growth ratio, which identifies growth stocks still selling at a good price by dividing the stock's P/E ratio by its growth rate. P/E/Gs below 1.0 are acceptable to Lynch, with those under 0.5 the best case. At 0.39, AXA's P/E/G falls into that best-case category, indicating that this fast-grower is still a good buy.

For financial companies like AXA, one measure of financial strength Lynch uses is the equity/assets ratio. The model I base on his writings calls for companies to have equity/assets ratios of at least 5 percent; at 6 percent, AXA makes the grade.

AXA is also one of the few companies that pass one of my Lynch model's bonus criteria: a net cash/price ratio over 30 percent. Lynch likes to see companies that have a lot of net cash -- defined as cash and marketable securities minus long-term debt -- on hand, as a high value for the net cash/price ratio dramatically cuts down on the risk of the security. Stocks with a net cash/price ratio over 30 percent thus get a bonus pass, and AXA, at 30.86 percent, makes the grade.

My O'Shaughnessy-based value strategy, meanwhile, looks for large companies because they tend to exhibit solid and stable earnings. The model I base on O'Shaughnessy's writings thus calls for companies to have market caps of at least $1 billion, and, with that $91.1 billion cap, AXA easily passes this test.

O'Shaughnessy also compares companies to the market average in a number of ways when looking for value stocks. One such area is cash flow per share, so my O'Shaughnessy-based model targets companies whose cash flow per share is greater than the market mean. AXA's cash flow, $5.37 per share, more than triples the current market mean of $1.58, passing this test with flying colors.

Another reason this method likes AXA: its 3.27 percent dividend yield.

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