The FTSE 100‘s steady rise of recent weeks has left many wondering whether there are any quality ‘blue-chip bargains’ left for the taking.
Britain’s top index on Wednesday hit its loftiest level so far in 2016 above the 6,350 marker. But these gains have been driven by a fresh ascent in fragile commodities stocks, while many quality shares have fallen by the wayside.
Indeed, banking colossus Lloyds (LSE: LLOY) and insurance play Aviva (LSE: AV) have actually shed 5% and 12%, respectively, during the past four weeks. However, I believe investors may be missing a trick here, as both stocks offer terrific investment prospects for the near term and beyond.
Buy British
On the one hand Lloyds, like many of its banking sector peers, remains hamstrung by the financial fallout related to previous misconduct, and in particular the mis-selling of PPI products.
In addition, it could be argued that the bank’s UK-centric operations don’t provide it with the security of geographic diversification, with concerns ranging from a ‘buy-to-let bubble’ through to the consequences of June’s ‘Brexit’ vote weighing heavily on investor appetite.
However, I believe that Lloyds’ focus on the strong British economy provides it with the stability that many of its industry rivals with high emerging-market exposure would envy at the present time. On top of this, the company’s ongoing cost-cutting and divestment scheme is going some way to mitigating the impact of huge PPI bills and facilitating handsome dividend flows.
Business is booming
Meanwhile at Aviva, I reckon the company’s vast worldwide presence makes it a winner for those seeking robust profits growth.
The insurer saw the value of new business gallop 24% higher in 2015, to £1.19bn. And I fully expect Aviva to have chalked up a terrific 13th consecutive quarter of new business growth for the January-March period.
The business has undergone massive restructuring in recent years to concentrate on key territories like the UK, Ireland and France. But Aviva’s rising success in developing markets also provides the company with explosive growth potential — new business values from Asia leapt by almost a quarter last year to £151m, for example.
So what does the City think?
Well, the impact of significant financial penalties — combined with expectations of slowing revenues — are expected to push earnings at Lloyds 10% lower in 2016. However, this projection still leaves Lloyds dealing on a bargain-basement P/E rating of 8.6 times.
And with growth expected to resume from next year, broker forecasts suggest that Lloyds will be confident enough to raise the dividend from 2.25p per share in 2015 to 4.4p in the current period, yielding a smashing 6.6%.
And over at Aviva, the Square Mile’s prediction that earnings will more than double this year creates an earnings multiple of just 8.5 times. And income hunters would no doubt be impressed by projections of a 23.8p per share dividend, up from 20.8p in 2015 and yielding a superb 5.5%.
