I keep trying to decide which is the best FTSE 100 stock to buy. And it usually comes down to a choice among the same handful. Today, I’m looking at this year’s Aviva (LSE: AV.) share price falls… and I like what I see.
Another bad year
Aviva shares have dipped another 12% so far in 2023. And that brings them to a five-year loss of 40%.
Saying that, anyone smart enough to have bought right after the Covid crash would be sitting on a nice profit now. Not that I did. No, I bought in some time before that.
Still, it doesn’t make sense to try timing our buys. That’s because we just can’t tell what might happen next month, next week, tomorrow. The pandemic made that clear.
Long-term clarity
The pandemic also made something else clear to me. Even the biggest stock market crashes tend to quickly vanish and just look like blips on the long-term chart.
I mean the FTSE 100 is down only 3% over five years, which is just a blink of the eye for a long-term investor. And that’s after the biggest global catastrophe we’ve seen for decades.
Stock valuation
Long-term valuation is what counts, and I think the low Aviva share price makes it very attractive.
On headline measures, we’re looking at a forecast price-to-earnings (P/E) ratio of only 7.5, about half the Footsie’s long-term average. And the City expects a dividend yield of more than 8%.
Now that all might look good if a company isn’t in any trouble. But, let’s face it, the insurance business can come under a lot of pressure in economic hard times. And the latest figures show the UK economy shrank in May. So, yes, hard times.
Company refocus
Aviva is going through a refocus of its own too. In recent years, it’s been a long way from the leanest or most efficient in the sector. So those shying away from insurers in general might be even less keen on Aviva.
Does all this mean Aviva is one to avoid? It might be, for those with a short-term outlook and who want to minimise risk. Oh, and for investing firms that can’t see past the next quarter and don’t want to be seen holding this year’s losers.
But for long-term investors who don’t mind a bit of risk, I think we might have a glowing opportunity to buy in cheaply.
Sentiment change
Sentiment is against Aviva shares right now, but sentiment changes. And seeing how the first half has gone might be one of the things that does it.
H1 results are due on 16 August. I’ll be mostly looking for liquidity and cash flow measures. If they’re healthy, and dividend prospects look good, I might buy some more.
Aviva isn’t the lowest risk stock in the FTSE 100, not by some way. And insurance stocks can be cyclical and volatile. But it might be the Footsie’s best contrarian stock to buy right now.
