The Motley Fool

3 reasons why I believe this FTSE 250 stock is a recovery buy

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

FTSE 100 (London Stock Exchange Share Index) on Gold Coin Stacks Isolated on White
Image source: Getty Images

Savvy investors have been looking at the FTSE for good recovery buys since the market crashed. I believe that Hiscox Ltd (LSE:HSX) could be an excellent recovery buy, and have put it on my watch list.

Hiscox is an international specialist insurer that provides general and commercial insurance products to its customers. These products can range from general home insurance to more complex commercial insurance for businesses.

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...

FTSE recovery opportunity

In 2020 so far, HSX has lost approximately 40% of its share price value. At the turn of the year, shares were trading for 1,430p per share. As I write, shares can be picked up for just 848p. It is worth noting that at the height of the market crash, shares plummeted as low as 692p per share. It has recovered 25% since that low price.

There are three key reasons I believe HSX represents a potential recovery opportunity. First, HSX was one of eight UK insurers that participated in a legal test case to determine whether it should pay out on business interruption claims related to Covid-19 and the pandemic. Based on a favourable High Court ruling, the payout it expects to make is less than one-third the amount initially feared. In monetary terms, this equates to approximately £100m in payouts. I believe this is a good result based on the fact it has approximately 34,000 business interruption policies. The payout figure could have been far higher.

Second, at its current price, I feel shares are cheap to buy right now. The FTSE has been badly beaten by the Covid-19 pandemic and many share prices across it have been weighed down. HSX shares are trading at close to 1.5 times book value, which is a lot lower than in recent times. In addition, broker forecasts for 2021 suggest a healthy $0.74 earnings per share amount with a potential dividend of $0.42. For a company with HSX’s track record, this is an excellent price in my opinion.

Trading update

The final reason is the trading update HSX released today for the nine months to 30 September 2020. For me there were some key indicators showing HSX’s business is resilient against the backdrop of economic uncertainty. Gross written premiums grew by 2%. There was a growth in customer numbers and in the third quarter alone, premiums grew by 15%.

Hiscox separates its business into different segments and nearly all of them saw some form of improvement since the crash. Retail reported growth in all five of its business units driven by its digital platforms. Reinsurance and Insurance-linked Strategy achieved good growth at July renewals with rates up 12% for the year.

HSX has prudently prepared for catastrophe claims in the form of reserving $75m in the third quarter. I believe this shows financial resilience and good planning ahead despite the economic uncertainty across the world.

My verdict

Overall I would be willing to buy shares in HSX at its current price point. I firmly believe it is an FTSE recovery opportunity. The High Court ruling in its favour regarding business and interruption policies and today’s trading update solidify my belief. Don’t be surprised to see HSX’s price and performance continuing to creep in an upward trajectory over the coming months.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Jabran Khan 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.