Value investing delivered poor returns last year. Cheap stocks stayed cheap and sometimes fell even further. But one year of underperformance isn’t necessarily a reason to abandon a strategy that has been proven to work over many decades.

In today’s article I’d like to look at two stocks that I believe offer good value in the current market, with limited downside.


Aviva (LSE: AV) shares have fallen by 18% from the 52-week high of 578p seen in March last year. Over the same period, earnings per share forecasts for 2015 have only fallen by 8%. This suggests to me that Aviva’s share price may have fallen too far.

Aviva’s underlying trading has remained healthy and the company is making good progress with its turnaround plan. The acquisition of Friends Life Group surprised the market but it appears to be working well, by generating cost savings that should help improve Aviva’s cash generation.

In its third-quarter update Aviva reported a 13% rise in the value of new insurance business written in the UK. This figure excluded Friends Life, which took the total to 36%. In Europe, the value of new business rose by 11%, while in Asia it was 21% higher. These seem like attractive figures to me.

Aviva’s valuation is attractive too. The insurer currently trades on 1.2 times net asset value and on a 2016 forecast P/E of 9.4. The shares offer a prospective yield of 4.9%.

This is significantly higher than the FTSE 100 average of 4.1%, and compares well to Aviva’s peers Prudential and RSA Insurance. Both of these firms offer forecast yields of around 3.3% and trade on double-digit forecast P/E ratios, despite having lower forecast earnings growth for 2016 than Aviva.

I believe Aviva could be an attractive long-term income buy at the current price.


If Aviva has underperformed, Barclays (LSE: BARC) has been an outright disappointment. The bank’s shares are worth a whopping 37% less than they were six months ago.

As a shareholder, I’m not entirely sure why. Although forecast earnings per share for 2015 have fallen by 9% since July last year, I’m not convinced this explains the slump in the share price.

Interestingly, City analysts seem to agree. Seventeen of the 24 analysts whose recommendations are covered by Reuters rate Barclays as a Buy or a Strong Buy.

50% upside?

Barclays’ shares have a tangible book value of 289p per share. That’s 50% more than the current share price of around 180p. If Barclays continues to trade in line with expectations, I’d expect this discount to gradually close.

Barclays’ earnings per share are forecast to rise by 17% to 25.4p in 2016, putting the stock on a 2016 forecast P/E of only 7.3. The bank’s 2015 earnings are also reassuring. We already know Barclays’ earnings for nine of the last 12 months. Based on these figures, analysts expect Barclays to report earnings per share of 21.7p for 2015 as a whole. That’s equivalent to a P/E of 8.6.

Finally, Barclays’ dividend is also expected to rise this year. A chunky 23% increase to 8.2p per share is expected, giving a forecast yield of 4.4%.

If you already own shares in Barclays or Aviva and are looking for more blue chip income ideas, I strongly recommend you take a look at 5 Shares To Retire On.

This exclusive Motley Fool report contains details of five companies that the Fool's top experts believe could beat the market over the next few years. Each stock offers an attractive dividend yield and has a strong track record of growth.

For full details of all five shares, download this free, no-obligation report today.

Just click here now for immediate access.

Roland Head owns shares of Barclays and Aviva. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.