Down 8.5% this month, is the Aviva share price too attractive to ignore?

It’s time to look into Aviva and the insurance sector while the share price is pulling back from year-to-date highs.

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Image source: Aviva plc

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It really looked like the Aviva (LSE: AV.) share price was going to break above £5 for the first time since the March 2020 global market crash. Technically, it did for all of one minute at the beginning of April. But I’m not counting that.

Will the stock be retesting that level again soon or will it move even higher?

The drop

Let’s first discuss the reason behind the recent pullback. The main drop in recent weeks was on April 11th, the day after the stock went ex-dividend.

If I buy a stock on its ex-dividend day, I am not entitled to the next cash dividend. Instead, this cash payout goes to the seller. So, the shares lose their appeal for passive income. April 11th saw several names go ex-dividend, and all fell as a result.

Since then, share prices have fluctuated but remain at a similar level to the closing price following the sell-off.

Although access to the next dividend is not available, Aviva boasts a strong yield of 6.9%, which is a big plus for an asset in my portfolio.

The trend is your friend

One positive that makes the recent pullback look like more of an opportunity rather than a problem is that the trend is still up. In fact, it has been trending higher for the past several years.

It’s up 80% from 2020 lows, 25% from 52-week lows and a comfy year-to-date gain of 5.5%.

I much prefer finding and investing in names that are already showing signs that buyers are in control rather than trying to find the bottom of a falling stock.

As well as the share price increasing over time, which external factors like an improving economy might have contributed to in part, fundamentals also support a continued move higher.

Strong forecast

Aviva reported better-than-expected operating profits last month, and its new guidance suggests an upgrade to the current consensus. The company has set a new goal to make a profit of £2bn a year by 2026. Additionally, it plans to increase the dividend to return more to shareholders.

The recent acquisition of Probitas gives Aviva access to the Lloyd’s of London insurance market. I think this is a unique deal that adds an asset with attractive margins and gives Aviva access to a new market.

Aviva’s bulk annuity business has grown rapidly, and the company is targeting £15-20bn of bulk annuity business over the next few years.

Risks

Rising rates and yields pose risks for insurers. However, if they manage these risks properly, they can capitalise on a great opportunity to increase their business’s profits.

Insurance companies can also be at risk of losing a lot of money due to natural disasters, big accidents, or widespread claims. These events can hurt their finances, especially when unexpected or rare events occur.

Overall

I think Aviva has the right fundamentals to continue advancing on its recent trend, not only to the recent £5 level (an 8.5% increase) but also towards pre-pandemic levels. Therefore, I am considering it as an investment for the long term at the current share price.

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.

Jesse Williamson has no position in any of the shares mentioned. 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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