Is It Safe To Buy Aviva plc, Amlin plc And Aldermore Group PLC?

Should you add these 3 financial stocks to your portfolio? Aviva plc (LON: AV), Amlin plc (LON: AML) and Aldermore Group PLC (LON: ALD)

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

With the possibility of a Grexit making headlines across the media, investors are understandably becoming increasingly concerned about risk. Certainly, the long-term future for the FTSE 100 remains bright, with the UK and global economy continuing to move from strength to strength. However, in the short run, share prices are likely to be volatile. As such, it could make sense to ensure that the stocks in your portfolio, while not without risk, have sufficient reward prospects to warrant their purchase and subsequent holding.

Great Value

One stock that most certainly offers this is Aviva (LSE: AV) (NYSE: AV.US). It may have a beta of 1.2, which means that its shares will probably be more volatile than those of the wider index, but it also offers a very wide margin of safety. For example, Aviva, despite being a dominant player in the life insurance market and having turned its performance around since its annus horibilis of 2012, trades on a price to book (P/B) ratio of just 1.7. This indicates that its shares could move significantly higher and that, on the downside, the risk of a substantial fall in valuation is somewhat limited.

Growth Potential

That’s because Aviva is expected to boost its earnings by 12% next year, which is around twice the growth rate of the wider market. Therefore, it appears able to command a much higher share price, although its growth prospects are somewhat behind those of banking stock, Aldermore (LSE: ALD). It may trade on a price to earnings (P/E) ratio of 14.9 which, compared to a number of its larger banking rivals, is relatively high. However, with Aldermore’s bottom line expected to rise by 49% this year and by a further 31% next year, appears to have a considerable margin of safety on offer that, as with Aviva, limits downside and offers plenty of upside.

In addition, Aldermore has a strong asset base and, while it lacks the size and scale of a number of its larger banking peers, is more nimble and better able to quickly adapt to changing circumstances. And, with the situation in the Eurozone being fluid at the present time, this could prove to be a major advantage moving forward and aid Aldermore in delivering on its optimistic medium term forecasts.

Yield

Of course, an indication of a company’s defensive profile and lower risk status is its dividend yield. And, on this front, Amlin (LSE: AML) offers excellent prospects, with the insurance company currently trading on a yield of 6.1%. That’s among the highest yields in the FTSE 350 and, best of all, there is considerable scope for dividends to increase. That’s because Amlin currently pays out 71% of profit as a dividend, which is not relatively high and, as such, is expected to increase shareholder payouts next year by 3.7%.

Looking Ahead

Clearly, the concerns surrounding a Grexit are causing investors to become rather nervous regarding the prospects for shares. However, the likes of Aviva, Aldermore and Amlin offer significant upside, with their value, growth prospects and yield (respectively) indicating that they offer a sufficiently wide margin of safety to warrant investment at the present time.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Amlin and 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.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

2 cheap dividend stocks I’d snap up in a heartbeat!

This Fool is on the look out for quality dividend stocks and earmarks these two firms as great options to…

Read more »