Are Aviva plc, Prudential plc & Beazley PLC Capable Of 20%+ Returns?

One of the major challenges for any investor is finding good value stocks with bright growth prospects and which offer an enticing yield. Usually, only one or two of those three criteria are met but, on occasion, it is possible to find companies which offer all three in abundance.

One such stock is Aviva (LSE: AV). Its shares have disappointed during the last year, with them being up around 1%. The key reason for this is uncertainty among investors regarding the company’s long term future after it merged with Friends Life in a £5.6bn deal. Clearly, this is a major move for both companies and there are fears that the planned levels of synergies may not be met, nor that the two businesses will be able to successfully integrate.

However, as Aviva’s most recent update showed, it is on-track to meet its acquisition targets so as to create a dominant force within the life insurance market. Looking ahead to next year, the company is forecast to increase its bottom line by 12% and, despite such a strong growth rate, Aviva’s shares trade on a price to earnings (P/E) ratio of only 11.7. This indicates that they could be due for an upward rerating to push their valuation over 20% higher, with a yield of 4.1% also being a major attraction.

Furthermore, Aviva’s payout ratio stands at just 48%, which indicates that dividend growth is likely to be brisk and, as such, it appears to be a top notch income, growth and value play for the long term.

Similarly, Prudential (LSE: PRU) also has significant growth potential in 2016 and beyond. Its main focus is the Asian economy, where the company is well-positioned to capitalise on the forecast increase in take-up of financial products in the coming years. And, while Prudential has had a change of CEO, its management team is highly experienced and their strategy appears to be sound, with the company being forecast to increase its earnings by 14% in the current year and by a further 9% next year.

This strong rate of growth puts Prudential on a price to earnings growth (PEG) ratio of just 1.3, which indicates that its shares offer 20%+ capital gain potential. Clearly, the yield of 2.6% is relatively low, but with Prudential expected to raise dividends by 9.3% next year and having a dividend coverage ratio of 2.8, rapid increases in shareholder payouts seem likely over the medium to long term.

Although Aviva and Prudential appear to be worth buying at the present time, the investment case for Beazley (LSE: BEZ) is less clear. That’s because the insurer is expected to post a fall in its bottom line of 1% in the current year, followed by a further 12% decline next year. This is expected to lead to a cut in dividends of 20% which, while prudent given the outlook for earnings, means that Beazley’s yield is due to fall to 3.7% next year.

Furthermore, Beazley trades on a forward P/E ratio of 15.7 and this indicates that its share price could come under pressure over the medium term. Certainly, the company’s shares have performed exceptionally well this year and are up 34% since the turn of the year. However, now could be a good time to move on to a different stock which offers better value, improved growth potential and a higher, growing dividend yield.

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Peter Stephens owns shares of Aviva and Prudential. The Motley Fool UK has recommended Beazley. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.