4 Finance Stocks Set To Beat The FTSE 100: Aviva plc, Royal Bank Of Scotland Group plc, Prudential plc And Direct Line Insurance Group PLC


Investors in Aviva (LSE: AV) (NYSE: AV.US) have a lot to look forward to, with the company’s £5.6bn takeover of Friends Life setting it up to be the dominant player in the life insurance market. In fact, the combined entity is expected to have 16m customers and this could allow it to generate significant synergies and improve margins moving forward.

In addition, Aviva continues to offer a potent mix of growth and value, with its share price appearing to offer strong growth prospects at a very reasonable price. For example, Aviva currently trades on a price to earnings growth (PEG) ratio of just 0.6 and, as a result, its share price could move higher at a much faster rate than the FTSE 100 over the medium term.


The next few weeks could be a momentous time for RBS (LSE: RBS). That’s because the part-nationalised bank is expected to return to profitability for the first time since the start of the credit crunch. As a result, this could boost investor sentiment in the bank and prove that its challenging period is now over, with investors being able to look ahead to more prosperous years in future.

Furthermore, with RBS yet to complete its strategy of becoming leaner, more efficient and more profitable, there are still further improvements to the company to be made. This is not only in terms of its bottom line, but also with regard to its risk profile which, in time, could become even more appealing.


With a payout ratio of just 36%, Prudential (LSE: PRU) seems to be somewhat mean when it comes to paying out dividends. As such, it currently yields a rather disappointing 2.5%. However, such a low payout ratio gives it the scope to reinvest within its business, and also means that its dividend per share growth rate is likely to rise rapidly over the coming years.

For example, next year Prudential is expected to increase dividends per share by an impressive 11% and, with interest rates set to be low, it could become a viable income stock over the medium term. As a result of this, Prudential could see demand for its shares increase and this could cause its valuation to move upwards at a brisk pace.

Direct Line

Even though profitability at Direct Line (LSE: DLG) is somewhat volatile, its shares still offer considerable upside potential. That’s because they come with a considerable margin of safety that more than compensates for a bottom line that is switching between growth and contraction fairly regularly.

For example, Direct Line currently trades on a price to earnings (P/E) ratio of just 12.2 which, when you consider that the FTSE 100 has a P/E ratio of around 15.9, indicates that Direct Line could be subject to an upward rerating adjustment over the medium term. As such, now could prove to be a great time to buy a slice of it – especially if you are comfortable with the aforementioned volatility.

Of course, RBS, Direct Line, Aviva and Prudential aren’t the only stocks that could boost your returns by beating the FTSE 100. That’s why the analysts at The Motley Fool have written a free and without obligation guide to help you find many more.

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Peter Stephens owns shares of Aviva and Royal Bank of Scotland Group. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.