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My Favourite FTSE 350 Stocks Right Now: Aviva plc, Hiscox Ltd And Novae Group Plc

With the FTSE 100 having reached an all-time high in 2015, there may be some concerns regarding valuations of leading companies at the present time. Certainly, the FTSE 100 may have fallen back somewhat following concerns surrounding the Greek debt crisis, but many investors may feel that with interest rate rises on the horizon, a level of around 6,800 points is relatively generous for the UK’s leading index.

However, insurance stocks such as Aviva (LSE: AV) (NYSE: AV.US) continue to offer excellent value for money. That’s despite Aviva’s share price having risen by an impressive 58% in the last five years, with its turnaround strategy being successful in taking a red bottom line, returning it to positive territory and delivering excellent profit growth last year.

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In fact, Aviva currently trades on a price to earnings (P/E) ratio of just 11.4, which is difficult to justify when you consider the numerous positive catalysts that are on the horizon. One notable potential catalyst that could push the company’s share price higher is the expectation that Aviva will post earnings growth of 12% next year. That is around twice the growth rate of the wider index and puts Aviva on a price to earnings growth (PEG) ratio of 0.8, which indicates that its shares are very undervalued.

Furthermore, Aviva is set to improve its efficiency in the coming years as it integrates the Friends Life business that was acquired into its own. This may cause teething problems in the short run, since merging two large businesses is never a straightforward task, but in the long run it should mean a lower overall cost base, improved margins and a more dominant position relative to Aviva’s competitors.

Meanwhile, non-life insurer Hiscox (LSE: HSX) also appears to offer excellent value for money at the present time. For example, it has a price to book (P/B) ratio of 1.75 and has a trailing P/E ratio of just 13.5. Furthermore, Hiscox has significant income potential, too, with its dividend currently being covered by profit an impressive 2.4 times. This should provide it with considerable scope to increase dividends at a rapid rate even if profit growth disappoints.

In fact, if Hiscox were to pay out around two-thirds of profit as a dividend then it would equate to a yield of 4.3% and, while Hiscox’s current yield of 2.7% is rather modest, it clearly has the potential to move much higher.

It is a similar story with smaller peer, Novae (LSE: NVA). Its dividends are covered twice by profit and, with it having a yield of 4.1% at the present time, there is scope for a very generous income return over the medium to long term. Furthermore, like Aviva, Novae also offers stunning capital gain potential, too. For example, it is forecast to grow its earnings by 10% next year and, despite this, its shares currently trade on a PEG ratio of just 1.1, which indicates that strong growth is on offer at a very reasonable price.

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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.

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