The banking and insurance sectors seem to me to house some rather nice bargains, and I think that’s largely because investors are still scared of the the finance business in general and the risks it might still hold.

Insurance is often cyclical too, and shares can perform quite poorly when people are in fear of global problems — we only need to look at the insurance companies that were knocked when markets opened for the New Year and trading in China was suspended after a 7% fall to see how people can overreact.

Low P/E, high yield

There are two in particular that look very good on fundamentals to me, and one of those is Aviva (LSE: AV) — and I’ve put my money where my mouth is on Aviva and have bought some.

Forecasts for the coming year would put Aviva shares, currently priced at 499p, on a P/E multiple of only 10, while the FTSE 100 average over the long term has been a bit over 14. On top of that, Aviva looks set to yield 4.8% in dividends, well ahead of the FTSE average, and I reckon that suggests a P/E of closer to 15 or more would be justified — which would imply a 50% share price rise to around 750p.

Supporting a substantial rerating is Aviva’s improving quarterly performance, with the firm well into its transformation strategy of firming up its capital position, reducing risk, and keeping costs down. There’s also a very firm Buy rating put on the shares by the City’s analysts — they’re not targeting a 50% rise just yet, but latest price targets suggest something around 650-700p.

Emerging market risk

Old Mutual (LSE: OML) is my other possibility, with its share price having taken a knock of late. It’s down 20% since late November, to 169p, and that gives us a forward P/E for 2016 of only a little over eight — with a well-covered dividend yield of 5% forecast.

Now, the reasons for the fall are clear and there is some rationality to them. Old Mutual focuses mainly on emerging markets and owns Nedbank, one of the largest banks in South Africa — and that makes the big institutional investors twitchy on two counts. It shows in brokers’ recommendations, with a far less bullish stance than Aviva and price targets suggesting a short-term upside of only around 20-25%.

But I think that’s fear-driven and over-conservative, especially after the firm’s third-quarter update looked pretty decent even in the face of tricky conditions in some markets. Forecasts have been cut back over the past 12 months, but only by a little, and there are still EPS rises on the cards for 2015 and 2016 — there could easily be a bigger upside here than the City currently thinks.

In short, I think we have two attractive income shares here, with strong growth prospects thrown in as a very nice bonus.

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Alan Oscroft owns shares in Aviva. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.