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Why I think the Aviva share price could crush the FTSE 100 in 2019

A number of FTSE 100 shares have delivered disappointing performances in the last year. Among them is Aviva (LSE: AV), with the insurance business recording a decline in its market valuation of 21% during the period.

Now, though, the stock appears to offer a wide margin of safety, as well as improving growth prospects. As such, it could be worth buying alongside another potential recovery stock which released an encouraging update on Tuesday.

Growth potential

Next Fifteen (LSE: NFC) delivered a positive trading update, with the digital marketing and communications company reporting its results for the 2019 financial year will be in line with expectations. It’s seen organic growth in the second half of the year continue to beat sector averages, acquisitions made during the period have further catalysed its growth rate, while it continues to invest in its transition to digital marketing products and services.

The company intends to merge its Bite and Text 100 businesses globally in order to create a new agency. It will also reorganise its collection of data businesses under the MIG brand in the coming months as it seeks to offer customers a more tightly integrated set of services.

With Next Fifteen expected to post a rise in earnings of 8% in the next financial year, it appears to offer a bright financial outlook. Having declined by 17% since early September, it could offer significant recovery potential as it implements what appears to be a sound strategy. With the global economy’s growth outlook relatively upbeat, it may experience positive trading conditions in future.

Improving outlook

While Aviva’s share price may have disappointed in the last year, the company appears to be making strong progress from a business perspective. It is due to record a rise in earnings of 8% in the current year, while it has been able to deploy around £2bn of excess capital. This is being used to reduce leverage, as well as engage in a £600m share buyback programme. It will also continue to make acquisitions, which could provide an additional growth catalyst on its bottom line.

Since the stock has fallen heavily during recent months, the company now trades on a price-to-earnings (P/E) ratio of 6.5. This indicates that investors may be uncertain about its future prospects, although recent updates from the company have generally been positive and suggest it’s performing in line with expectations.

A dividend yield of almost 8% is relatively high, with the company’s shareholder payout covered twice by profit. Although its dividend policy and wider strategy may be subject to change once a permanent CEO is appointed, the company appears to have a solid growth outlook. Its exposure to a variety of markets means that it may offer diversification, while a low valuation indicates that it has the potential to recover and outperform the FTSE 100 during the course of 2019.

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Peter Stephens owns shares of Aviva. The Motley Fool UK has recommended Next Fifteen Communications. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.