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Have £1k to invest? Why I think FTSE 100-member Aviva could soar after its share price fall

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The Aviva (LSE: AV) share price has experienced a significant fall in recent weeks. In fact, the company’s stock price has declined by almost 20% in the last three months as investor sentiment towards the wider FTSE 100 has deteriorated.

As such, there could be a recovery opportunity on offer for long-term investors. The stock now appears to be cheap, has improving financial prospects and offers a high income return. Of course, it’s not the only share with a disappointing recent performance. Could a smaller stock which released results on Wednesday also offer recovery potential?

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Improving prospects?

The stock in question is Hargreaves Services (LSE: HSP). The diversified business which delivers services to the industrial and property sectors reported that trading for the first half of its financial year has been satisfactory. It expects revenue and underlying operating profit to show growth versus the same period of the previous year, with it experiencing improved trading within its UK businesses. It remains on track to meet guidance for the full year.

The company’s net debt declined to £28.6m from £30.8m in May 2018. Further sales of legacy assets are due in the second half of the year.

In the last six months, the Hargreaves Services share price has declined by around 10%. This means that it now trades on a price-to-earnings (P/E) ratio of around 14. While there could be recovery potential ahead as a result of its improving financial outlook, the stock appears to be relatively risky and lacks a wide margin of safety compared to other mid and small-cap opportunities. As such, it may lack relative appeal at the present time.

Return potential

In contrast, the Aviva share price appears to be exceptionally cheap following its recent share price fall. It trades on a P/E ratio of 6.9 using the company’s current year earnings forecast. And with net profit due to rise by 9% next year, it seems to be delivering on its strategy. It is, of course, building for the long term, with significant acquisition activity planned at the same time as it is aiming to use excess capital to reduce overall leverage.

From an income perspective, Aviva may be one of the best opportunities in the FTSE 100 at the present time. The stock has a yield of 7.3%, and is due to raise dividends by 12% in 2019. Further growth could be ahead due to its increasingly generous stance on dividend payments as a proportion of net profit, while a rising bottom line could act as a catalyst over the medium term.

Although there are a number of FTSE 100 stocks which could offer long-term investment appeal at the present time, Aviva’s mix of growth and income potential could make it a strong performer in the coming years. After a tough period, it appears to have significant recovery potential in my opinion.

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Peter Stephens owns shares of Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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