According to Hargreaves Lansdown, the three most popular stocks on its platform last week were FTSE 100 companies Phoenix Group, Legal & General, and BP.
The two insurers represented 1.65% and 1.53% of all trades last week, while BP represented 1.39%, just tipping Rolls-Royce at 1.25%.
However, instead of providing a run down as to all the stocks investors bought and sold, I thought it would be more useful to take a closer look as to why these two insurers Phoenix Group and Legal & General, topped the list.
Not universally loved
Let’s start by recognising that opinion among analysts is mixed on these stocks.
Last week, Goldman Sachs reiterated its existing ratings for several key players in the UK-listed insurance sector. This included a ‘neutral’ rating for Legal & General, suggesting its current market price likely reflects its fair value and a ‘sell’ rating for Phoenix.
However, the opinion of all analysts covering these stocks is broadly positive. Both companies have ‘outperform’ ratings.
Currently, Phoenix Group is trading around 9.1% below its average share price target — that’s the consensus view of all analysts and not just Goldman. Meanwhile, Legal & General trades around 16% below its share price target.
Making headlines
Last week, Phoenix reported a 15% increase in adjusted operating profits for the first half of 2024, reaching £360m, and decided to retain its SunLife division instead of selling it.
The company also reiterated its medium-term targets, aiming for £1.4bn-£1.5bn in cash generation by 2024 and £900m in adjusted operating profit by 2026.
At first, the market didn’t appear to be wowed by the earnings report, or perhaps the decision not to sell SunLife. However, investors adopted a net-buying position toward the end of the week with the stock lifting.
Meanwhile, Legal & General announced the sale of its UK house builder CALA Group for £1.35bn to Sixth Street Partners and Patron Capital. Legal & General wants to simplify its portfolio and focus on core businesses.
It will receive £1.16bn in cash proceeds, with £500m paid at closing and the rest over five years.
Retail investors seek opportunity?
Many of you will have already noted that both Phoenix Group and Legal & General stock fell last week. And that contrasts with the idea that these were the most bought shares by Hargreaves Lansdown investors. After all, the stock market is all about supply and demand.
As such, we can assume that institutional investors, including credit unions, banks, other insurance companies and large funds such as a mutual or hedge fund, and venture capital funds, may have sold shares in these companies. And as these institutional investors sold their holdings, retailer investors swooped on the opportunity.
And while some investors might find these insurance companies to be boring, noting mature markets and slow growth expectations, others will be more than happy to snap up these huge dividend payers. Phoenix currently offers a 9.6% yield and Legal & General, 9.2%.
These are index-topping dividends and these insurers have the cash flows to make it possible.
