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Is It Safe To Buy Aviva plc, Amlin plc And Aldermore Group PLC?

With the possibility of a Grexit making headlines across the media, investors are understandably becoming increasingly concerned about risk. Certainly, the long-term future for the FTSE 100 remains bright, with the UK and global economy continuing to move from strength to strength. However, in the short run, share prices are likely to be volatile. As such, it could make sense to ensure that the stocks in your portfolio, while not without risk, have sufficient reward prospects to warrant their purchase and subsequent holding.

Great Value

One stock that most certainly offers this is Aviva (LSE: AV) (NYSE: AV.US). It may have a beta of 1.2, which means that its shares will probably be more volatile than those of the wider index, but it also offers a very wide margin of safety. For example, Aviva, despite being a dominant player in the life insurance market and having turned its performance around since its annus horibilis of 2012, trades on a price to book (P/B) ratio of just 1.7. This indicates that its shares could move significantly higher and that, on the downside, the risk of a substantial fall in valuation is somewhat limited.

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Growth Potential

That’s because Aviva is expected to boost its earnings by 12% next year, which is around twice the growth rate of the wider market. Therefore, it appears able to command a much higher share price, although its growth prospects are somewhat behind those of banking stock, Aldermore (LSE: ALD). It may trade on a price to earnings (P/E) ratio of 14.9 which, compared to a number of its larger banking rivals, is relatively high. However, with Aldermore’s bottom line expected to rise by 49% this year and by a further 31% next year, appears to have a considerable margin of safety on offer that, as with Aviva, limits downside and offers plenty of upside.

In addition, Aldermore has a strong asset base and, while it lacks the size and scale of a number of its larger banking peers, is more nimble and better able to quickly adapt to changing circumstances. And, with the situation in the Eurozone being fluid at the present time, this could prove to be a major advantage moving forward and aid Aldermore in delivering on its optimistic medium term forecasts.


Of course, an indication of a company’s defensive profile and lower risk status is its dividend yield. And, on this front, Amlin (LSE: AML) offers excellent prospects, with the insurance company currently trading on a yield of 6.1%. That’s among the highest yields in the FTSE 350 and, best of all, there is considerable scope for dividends to increase. That’s because Amlin currently pays out 71% of profit as a dividend, which is not relatively high and, as such, is expected to increase shareholder payouts next year by 3.7%.

Looking Ahead

Clearly, the concerns surrounding a Grexit are causing investors to become rather nervous regarding the prospects for shares. However, the likes of Aviva, Aldermore and Amlin offer significant upside, with their value, growth prospects and yield (respectively) indicating that they offer a sufficiently wide margin of safety to warrant investment at the present time.

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Peter Stephens owns shares of Amlin and 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.

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