The Aviva (LSE: AV) share price plunged in this year’s stock market crash. Investor sentiment towards the business has remained weak ever since. Indeed, the stock continues to trade around 15% below the level at which it began the year.
However, I think this could be a great opportunity. Long-term investors have a chance to snap up this high-quality blue-chip stock at a discount price.
Today, I’m going to explain why investors should consider adding the Aviva share price to their portfolio.
Aviva share price bargain
As one of the UK’s largest insurance groups, Aviva occupies a unique space in the company’s financial services industry. It provides retirement savings and insurance products for hundreds of thousands of people across the UK.
This business has a relatively defensive nature. Managing pension assets requires a long-term outlook and insurance is a highly regulated and controlled industry.
In these sectors, the biggest companies have a competitive advantage. The more prominent they are, the lower their costs, which means they can offer products at lower prices compared to smaller competitors.
Aviva ticks all of these boxes. However, these advantages aren’t reflected in the Aviva share price, partly because the company has struggled for direction in recent years. Management turmoil hasn’t helped.
Still, at the beginning of the year, management started to get a grip on the situation. It laid out a plan to streamline the business and focus on its core product lines. Unfortunately, the coronavirus crisis put this turnaround on hold. Nevertheless, I expect the company to resume its long-term strategy when the crisis is over.
Look past the stock market crash
The stock market crash had a significant negative impact on the Aviva share price. But I think investors should look past this short-term factor and concentrate on the company’s long-term potential.
Aviva isn’t only one of the largest insurance organisations in the country, but it’s also one of the most respected. This should help the company get back on its feet as the UK economy starts up again.
Of course, the business remains exposed to other near-term risks, such as a second wave of coronavirus, or economic slump. Still, in the long run, it looks to me as if Aviva has the potential to produce large total returns for investors as the company capitalises on its position in the market and competitive advantages.
What’s more, the company has always returned a large percentage of its profits to investors with dividends. When regulators allow, I expect this trend to continue. If the distribution is reintroduced at 2019 levels, the Aviva share price could support a dividend yield of 6%.
The shares are also currently trading at a price-to-book value (P/B) of less than one, implying the stock offers a wide margin of safety after the recent stock market crash.
