The Motley Fool

The Aviva share price is ridiculously cheap on record FTSE 100 profits. I’m buying!

Image source: Getty Images.

The Aviva (LSE:AV) share price has barely moved, despite record £3.2bn operating profits.

The FTSE 100 favourite’s share price now sits below 340p. That’s a price-to-earnings ratio of just 9.2, well under the market average of 16. In my opinion that’s far too cheap for a fundamentally sound business like Aviva.

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...

This stock makes perfect sense for investors fleeing to safer options as markets crumble. And for income investors who want to sit back, relax, and take high-yield dividends to help pay for their retirement, there are few better options.

9% yield

The Aviva share price is poised for an upsurge when coronavirus fears dissipate and markets find a bottom. When that happens, a 9% dividend yield will probably pare back to a more sanguine level between 6.5% to 8%, by my calculations.

In the meantime, I’m loading up on the insurance giant. Institutional investors’ losses can be our gain.

City analysts think Aviva is undervalued by as much as 70%. When the dust settles on the other side of this market slump, investors will be in prime position to snap up a bargain.

CEO Maurice Tulloch told investors with not a little humility on the 5 March results day that he is “committed to running Aviva better“. He is laser-focused on the fundamentals, which I particularly like. What is key to that plan is to excel at the basics of “giving customers a simpler, faster and more convenient service“.

Strong balance sheet

The UK’s largest insurer now serves 33.4m customers, up 2% on last year. That’s a large and loyal customer base to work with. Assets are 9% higher at £417bn thanks to sound investments. The company also says the long-term outlook is positive in the majority of its markets.

The underlying business is extremely strong. Recent results showed operating profits 6% higher, an already hefty capital surplus rising by £600m to £12.6bn and full-year dividends hiked by 3% to a 10-year high of 30.9p per share.

Credit ratings agencies already say Aviva is rated ‘A’ to meet policyholder obligations.

And the present value of new business premiums, a measure of total sales in its insurance business, is up 12% to £45.7bn. Aviva also reduced its debt leverage ratio to a conservative 31%, which should support long-term stability.

Go long

What makes me particularly happy is that the company is ahead of its stated plans for return on equity. It has thrashed its target of 12% by 2022 to return 14.3% this time around. To achieve that goal Tulloch will trim costs and allocate more capital to the best-returning parts of the business.

Like most FTSE 100 firms it has expressed concerns over the uncertainty that Covid-19 brings to the market. But as it noted in its results, “our scale, diversity, and the strength of our balance sheet will help meet any short-term challenges.”

If all of this sounds quite dull, you wouldn’t be far wrong. But at a time of intense volatility, I’m betting on dull, well-managed businesses to gain the most.

“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!

Tom Rodgers owns shares in Aviva. The Motley Fool UK has no position in any of the shares mentioned. 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.

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.