The Motley Fool

3 Insurance Stocks Set To Boost Your Returns: Aviva plc, Prudential plc And Direct Line Insurance Group PLC

Keen investors may have noticed that Warren Buffett is a big fan of the insurance sector. That’s at least partly because the business entails insurance companies receiving income from customers, investing it, then paying out roughly the same in claims as they received, while keeping the returns from the investments. If payouts for claims increase, premiums go up and this means that, in the long run, insurance can prove to be a very profitable space.


Despite this money-making potential, insurance companies in the FTSE 100 continue to offer excellent value for money. In fact, while the FTSE 100 is at an all-time high and there are question marks regarding its potential to move higher throughout the course of the year, the insurance sector holds tremendous opportunity.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

For example, Aviva (LSE: AV) (NYSE: AV.US) currently has a price to book (P/B) ratio of just 1.75, which indicates that its shares could move significantly higher. Furthermore, Aviva has a price to earnings (P/E) ratio of just 11.6, which is considerably lower than the FTSE 100’s P/E ratio of 16. In fact, if Aviva were to have the same P/E ratio as the FTSE 100, it would mean its shares trading an incredible 38% higher than their current level and, with Aviva’s bottom line set to grow by 16% next year, it is difficult to justify such a low valuation versus the wider index.

The same is true of Prudential (LSE: PRU) (NYSE: PUK.US). Certainly, there is uncertainty regarding its new CEO and the strategy that will be employed moving forward. However, the company’s share price appears to more than fully reflect this risk, with Prudential having the potential to become a top notch income play in future.

In fact, while Prudential currently yields just 2.4%, it has increased dividends per share at an annualised rate of 10.8% during the last five years. This rate of growth shows little sign of slowing, with Prudential expected to bump up dividends by 12% next year and, looking ahead, a continuation of this trend seems likely and could push the company’s share price much higher.

Certainly, there have been strong performers within the insurance sector. For example, shares in Direct Line (LSE: DLG) have risen by 35% in the last year but, as with Aviva and Prudential, they could have much further to go. That’s because Direct Line trades on a P/E ratio of just 12.2, which indicates that investor sentiment could pick up markedly. And, with the company’s shares having a beta of just 0.6, it could prove to be less volatile than the wider index and, therefore, a relatively defensive option.

So, while many investors may feel that the FTSE 100 could be due a pullback, Aviva, Prudential and Direct Line show that there is still excellent value for money within the insurance sector. And, with bright futures and excellent dividend potential, all three companies could boost your returns over the medium to long term.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Peter Stephens owns shares of Aviva. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.