Why I think the Aviva share price could crush the FTSE 100 in 2019

Aviva plc (LON: AV) appears to offer a wide margin of safety compared to the FTSE 100 (INDEXFTSE: UKX).

| 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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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.

A number of FTSE 100 shares have delivered disappointing performances in the last year. Among them is Aviva (LSE: AV), with the insurance business recording a decline in its market valuation of 21% during the period.

Now, though, the stock appears to offer a wide margin of safety, as well as improving growth prospects. As such, it could be worth buying alongside another potential recovery stock which released an encouraging update on Tuesday.

Growth potential

Next Fifteen (LSE: NFC) delivered a positive trading update, with the digital marketing and communications company reporting its results for the 2019 financial year will be in line with expectations. It’s seen organic growth in the second half of the year continue to beat sector averages, acquisitions made during the period have further catalysed its growth rate, while it continues to invest in its transition to digital marketing products and services.

The company intends to merge its Bite and Text 100 businesses globally in order to create a new agency. It will also reorganise its collection of data businesses under the MIG brand in the coming months as it seeks to offer customers a more tightly integrated set of services.

With Next Fifteen expected to post a rise in earnings of 8% in the next financial year, it appears to offer a bright financial outlook. Having declined by 17% since early September, it could offer significant recovery potential as it implements what appears to be a sound strategy. With the global economy’s growth outlook relatively upbeat, it may experience positive trading conditions in future.

Improving outlook

While Aviva’s share price may have disappointed in the last year, the company appears to be making strong progress from a business perspective. It is due to record a rise in earnings of 8% in the current year, while it has been able to deploy around £2bn of excess capital. This is being used to reduce leverage, as well as engage in a £600m share buyback programme. It will also continue to make acquisitions, which could provide an additional growth catalyst on its bottom line.

Since the stock has fallen heavily during recent months, the company now trades on a price-to-earnings (P/E) ratio of 6.5. This indicates that investors may be uncertain about its future prospects, although recent updates from the company have generally been positive and suggest it’s performing in line with expectations.

A dividend yield of almost 8% is relatively high, with the company’s shareholder payout covered twice by profit. Although its dividend policy and wider strategy may be subject to change once a permanent CEO is appointed, the company appears to have a solid growth outlook. Its exposure to a variety of markets means that it may offer diversification, while a low valuation indicates that it has the potential to recover and outperform the FTSE 100 during the course of 2019.

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 Aviva. The Motley Fool UK has recommended Next Fifteen Communications. 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.

More on Investing Articles

UK money in a Jar on a background
Investing Articles

With a 10.1% yield, should I buy this FTSE 250 income stock?

Our writer looks at an income stock that’s kept its dividend unchanged for five years. But is it high enough…

Read more »

Investing Articles

Up 23% in a month, can this FTSE 100 stock continue to soar?

Airtel Africa's recently been the FTSE 100’s top-performing stock. With huge opportunities for growth ahead, is it set to continue?

Read more »

Investing Articles

£20,000 in savings? Here’s how an investor could use it to target an eventual £980 of passive income each month

Our writer demonstrates how an investor could aim to earn close to £1,000 each month in passive income from a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

£10,000 invested in the S&P 500 at the start of 2025 is now worth…

Since the start of the year, the S&P 500's underperformed the FTSE 100. And Stephen Wright thinks investing in the…

Read more »

Investing Articles

Is this a turning point for the Diageo share price?

The Diageo share price is at an eight-year low. Is this FTSE 100 favourite simply too cheap to ignore? Roland…

Read more »

Investing Articles

As the FTSE 100 hits record highs, should I sell my shares and buy an index fund?

Our writer’s portfolio lagged the FTSE 100 last year, but he’s not giving up on stock-picking and highlights a recent…

Read more »

Happy young plus size woman sitting at kitchen table and watching tv series on tablet computer
Investing Articles

£10,000 invested in Lloyds shares 6 months ago is now worth…

Lloyds shares have performed well over 12 months but have broadly disappointed investors over the long run. Dr James Fox…

Read more »

Investing Articles

£20,000 in savings? Here’s how investors can aim for a £4,000 monthly second income

Millions of investors use the Stocks and Shares ISA as a vehicle to build wealth and generate a second income.…

Read more »