The Aviva (LSE: AV) share price has been in great form over the last year. Those buying in July 2020 will have seen a gain of around 40%. Although some of this will be due to the general recovery seen in stocks since the Covid-induced crash, that’s still a sizeable return for the FTSE 100 insurer and asset manager.
Over the last month however, things have come off the boil. What gives?
Aviva share price: end of the rally?
It doesn’t seem to be related to trading. In May, the FTSE 100 member announced it had seen record net flows at its Savings & Retirement arm in the quarter, along with the highest Q1 sales in General Insurance for 10 years.
No, it would seem the Aviva share price might be experiencing a temporary blip, due to fears over rising Covid infection levels and a slowing of the global economic recovery. For a long-term investor like me, these risks are par for the course. Predicting share price movements over a few days or weeks is very hard. There are simply too many variables that could contribute to performance.
All that aside, I do wonder if we could see a revival in the share price if half-year results, due on 12 August, prove better than expected. The recent arrival of active investor Cevian Capital may also provide some support. Taking a near-5% stake in the company, it thinks the Aviva share price should be over 800p within three years.
Other FTSE 100 options
Of course, Aviva isn’t the only option available to me if I wanted exposure to the insurance sector. In fact, two other giants from the FTSE 100 — Legal & General and Admiral — are due to report next month too. The former sends out its latest set of interim numbers on 4 August. Admiral does the same a week later.
From a valuation perspective, Aviva looks like the best buy, based on traditional metrics. Legal & General’s stock changes hands for just 8 times forecast earnings, slightly higher than its peer’s forward P/E of 7.
Admiral has a far richer forward earnings multiple of 16, giving it the bronze medal position. Some of this may be due to the company already announcing that it had benefited from lower motor insurance claims during lockdowns (and therefore generating higher-than-expected profits).
Having said this, the 5.7% dividend yield at Aviva is the worst on offer. LGEN has a forecast yield of 6.9%, based on its current share price. A mooted 254p per share payout gives Admiral the top spot with a yield of 7.6%.
Then again, Aviva’s cash returns are covered to a greater extent by profits than the other two. Although no dividend stream is ever guaranteed, Cevian also thinks Aviva’s dividend could double to 45p per share by 2024.
As always, a decision to buy stock in any of these companies will depend on what things are most important to me. If I were looking for big share price gains, I’d look to more growth-focused stocks elsewhere.
Still a buy
As far as I can ascertain, the recent drop in the Aviva share price is simply a response to general market jitters rather than anything to do with the company. I’d have no qualms about investing now if I wanted exposure to this part of the market for my own portfolio.
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