The FTSE 100 has managed to stay above 7,000 index points for three days running. Various factors have been contributing to the positive sentiment. Major mining stocks boosted share prices on Wednesday, followed by tobacco stocks on Thursday. Today it appears to be The Bank of England’s improved growth forecasts bolstering the FTSE 100, with Rolls-Royce Holdings and Anglo American’s share prices both rising over 2%. Meanwhile, Pearson (LSE:PSON) and Aviva (LSE:AV) are also enjoying a positive turn in fortunes.
Tech stock Pearson rises
Yesterday, educational publisher Pearson was top of the FTSE 100 risers, up over 3%. This turned out to be in response to institutional research company Exane BNP Paribas upgrading its guidance on the stock. Pearson provides educational products and services to governments, educational institutions, corporations, and professional bodies globally. And Exane believes Pearson will successfully scale its direct-to-consumer educational tech revenues.
In a recent trading update, Pearson noted it’s making good progress in its ongoing shift to digital and will soon launch a college app.
It has a £5.9bn market cap and forward price-to-earnings ratio of 24. Earnings per share are 41p, and its dividend yield is 2.3%. Today its share price is rising again. But while demand for online education has undoubtedly been ramping up since the pandemic started, competition is fierce. Unfortunately, Pearson has considerable debt too.
While the Pearson share price reached a high of nearly £15 a share in 2015, it’s since experienced extreme volatility and only once exceeded £10 in 2018. I think it’s been a disappointment to many shareholders. I’m not feeling overly confident in this stock and think its potential is possibly priced-in. With the world reopening, the demand for online education may pull back. Therefore, I won’t be adding it to my Stocks and Shares ISA today.
Aviva share price rises
The Aviva share price is also rising today. The British insurer endured some operational challenges last year, but its shares still rose 69%.
In its March 2021 earnings call, Aviva confirmed a robust balance sheet with £13bn in capital surplus, cover ratio of 202% and liquidity of £4.1bn.
The Aviva share price began a downward trajectory in 2018 (and fell off a cliff as the pandemic took hold). It lost investor trust in 2018 after giving the impression it was cancelling £450m worth of preference shares as part of a plan to reduce hybrid debt by £900m. Preference shares pay dividends regardless of a company’s performance. This caused an outcry and led Aviva to be criticised for its governance.
Despite the challenges posed by Covid-19, 2020 was a record year in its key growth areas. It achieved 8% growth in its commercial lines compared with 2019. And attracted £6bn worth of new business sales in bulk purchase annuities (company pensions).
Unfortunately, it wasn’t all good news. Personal lines and its asset management division saw weak profitability. Yet, after a couple of trying years, this was better than expected. Aviva is now disposing some of its foreign entities throughout 2021 to help streamline its operations for a brighter future.
I like that Aviva’s price-to-earnings ratio is a very low 5 and earnings per share are 70p. Its dividend yield now sits around 5%. There are some risks to this business, but I think insurance is an area that continues to see demand. Furthermore, with such a low P/E and enticing dividend, I’m tempted to buy shares in Aviva.
