In 2025 I’ll be doing pretty much the same as I’ve been doing this year, looking around for cheap shares to add to my portfolio. I’m intrigued by these two. They’re cheaper than I would have expected.
Lloyds of London insurer Beazley (LSE: BEZ) baffles me. As a rule, shares usually look cheap after falling in value. But the Beazley share price has had a blockbuster 12 months, jumping 53.56%. It’s up 95.67% over three years.
Can the share price keep flying?
Half-year results published back in August showed profit almost doubling from $366.4m to a record $728.9m. Investments and cash up 15% to $11.43bn as “favourable” financial markets boosted its investment portfolio by 4.7% to $513m.
On 6 November, the board reiterated full-year guidance despite a “volatile claims environment”, including a $175m hit from Hurricanes Helene and Milton. And here’s what may explain its low valuation.
FTSE 100-listed Beazley is on the front line of climate change, and as the storm season seems to grow wilder, those claims will keep rolling in. There’s always a risk it will take an outsize big hit. Alternatively, a stock market sell-off will hit that portfolio.
I still think it’s a ridiculously cheap with a price-to-earnings (P/E) ratio of 5.19. The trailing yield is a modest 1.73%. It’ll be on the list when I consider which stocks to add to my ISA in the New Year.
Here’s another anomaly. Insurer Hiscox (LSE: HSX) only joined the FTSE 100 in the September reshuffle, so I expected its share price to be flying as it arrowed into the blue-chip index. Yet it’s only risen 6.16% over the last year. It’s enjoyed a little bump in the last month, presumably as index trackers add it to their portfolios, but I’m a little underwhelmed.
It looks good value too
Hiscox has been in the FTSE 100 before, back in 2020. It took a beating in the pandemic, when it was hit with more than £350m of claims. Event cancellation and business disruption payouts triggered a £269m loss.
The board quickly reversed that in 2021 with a £191m profit. It then multiplied that to £276m in 2022 and £625m in 2023. The trailing yield of 2.7% is handsomely covered 5.5 times by earnings. That’s forecast to hit 3.4% next year, with cover still solid at four.
Hiscox specialises in small business insurance, so could struggle if next year proves tough for the UK economy. Fortunately, it has exposure to the US and Asia too.
It’s very cheap, with a P/E ratio of 6.73 times. Again, climate change risk may explain that. It took a $75m hit from Hurricane Milton. Yet I think today’s low valuation is an exciting opportunity, and I’ll consider adding this value stock to my ISA before the April deadline.
