However, the stock is cheap for a reason. Just is a significant provider of so-called lifetime mortgages. These products allow retirees to take out equity from the value of their homes, which they can then use to cover living expenses. When they pass away, Just uses proceeds from the sale of the house to recoup its initial investment plus interest.

Regulators have these products in the crosshairs because they believe companies could be taking on more risk than is acceptable. A sudden fall in home prices could destabilise the entire model and leave businesses like Just out of pocket. 

Taking action

Management has been trying to reassure investors that it has the situation under control by improving its capital ratios. But these efforts are being hampered by falling levels of business. According to the company’s trading update for the first six months of 2019, underlying profit declined 27%, and new business operating profit declined 39%.

In its update, the business also says it is reducing “new business strain” and is reducing “Defined Benefit longevity risk through reinsurance.” These actions have helped improve Just’s capital position, but the company is also warning that it might have to raise additional funds.

All in all, there are just so many moving parts here, I think it’s probably best for investors to avoid Just entirely (although my Foolish colleague Harvey Jones seems to disagree). 

There are many other companies out there on the market that offer a better risk-reward profile, one of which is FTSE 100 dividend champion Aviva (LSE: AV).

A bigger, better buy

Just and Aviva operate in basically the same market, but Aviva has size on its side. 

The group is also well-diversified with operations around the world. More importantly, it also has a much stronger balance sheet. 

Indeed, at the end of 2018, Aviva reported a Solvency II capital surplus of £12bn with a Solvency II cover ratio of 204%. At the end of June, Just’s Solvency II cover ratio was only 149%. 

Balance sheet strength isn’t the only difference between these two companies. Aviva is also far more profitable. Just has reported losses in two of the past six years. During the same time frame, Aviva has reported a cumulative net income of more than £7bn. 

As the numbers above show, Aviva is a much stronger business than its smaller peer, but despite its attractive fundamentals, the stock is currently trading at a bargain-basement forward P/E of just six. City analysts have pencilled in earnings per share growth of 69% this year following an increase of 4% in 2018 and 84% in 2017.

Analysts are also expecting the company to announce a full-year dividend of 31.1p, giving a forward dividend yield of 8.3% at current prices. In my opinion, this valuation is too good to pass up. That’s why I’d avoid shares in Just and buy Aviva instead. The larger business has much more attractive fundamentals.

The post A struggling mid-cap I’d dump for this FTSE 100 dividend stock yielding 9%! appeared first on The Motley Fool UK.

More reading

• What sort of passive income stream could you build for a fiver a day?
• Nervous about investing in a Stocks & Shares ISA? Read this first
• I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…
• £5,000 invested in Aviva shares 6 years ago is now worth…
• £7,500 invested in Aviva shares 5 years ago is now worth…

Rupert Hargreaves owns no share mentioned. 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.

These numbers suggest the shares could rise more than 100% from current levels. Indeed, the bank’s international peers, such as Morgan Stanley and JPMorgan, trade at a valuation of more than 10 times forward earnings, and more importantly, a price-to-tangible book ratio of between one and 1.9. At a ratio of 1.9, the Barclays share price could hit 450p+.

Realistically, I don’t think the stock will hit this level any time soon. A ratio of 1 might be more appropriate. Even at this level, the Barclays share price could still be worth more than 300p, an increase of around 100% from current levels.

Time is running out

I think time is running out for investors to snap up the Barclays share price bargain.

You see, over the past five years the bank has really struggled to grow, and despite shedding thousands of jobs, profitability has remained depressed. As a result, investors have stayed away. Barclays needs to prove that it has put its mistakes behind it and to return to growth before market confidence returns. 

It looks as if it is set to do just that in 2019. Analysts have pencilled in earnings growth of 72% for 2018 and if it hits this, then the bank should not have too much trouble achieving the City’s targeted growth rate of 5% for 2019. 

At present, analysts are expecting the group to generate around £8bn in profit for 2018 and 2019. If it meets the analyst goal, I reckon it won’t be long before the Barclays share price perks up. 

With this being the case, I reckon now could be the time to buy. 

Recovery play

As well as Barclays, Just Group (LSE: JUST) is another recovery play I think could double in value in the near term.

Last year, regulators decided that providers of so-called lifetime mortgage products, which includes Just, will need to hold more capital on a balance sheet. They set a deadline of the end of 2018 to meet the new capital rules meaning Just was facing the prospect of having to raise hundreds of millions of pounds in extra capital in just a few months. This prospect that created “a material uncertainty that may cast significant doubt on the group’s ability to continue as a going concern,” according to auditors, KPMG.

Luckily, regulators decided to postpone the implementation of the rule to the end of 2019, giving Just some much-needed breathing space.

The group issued some further good news today. Business sales in the 12 months to the end of 2018 increased 15% year-on-year. As well as growing the business, management is also working flat out to optimise its capital structure, and we should get an update on this soon. 

In the meantime, the stock is trading at just 5.7 times forward earnings and a price-to-tangible book ratio of 0.6, implying a potential upside of 100%+ when the uncertainty is lifted (the rest of the sector is trading at a forward P/E of just under 12 and a ratio of 2). This potential reward is worth the risk in my opinion.

The post Hurry! I think the Barclays share price buying opportunity is closing fast appeared first on The Motley Fool UK.

More reading

• £10,000 invested in Barclays shares just 12 months ago is now worth…
• 5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?
• Just check out the latest bumper forecasts for Lloyds, NatWest and Barclays shares
• £7,500 invested in Barclays shares 1 year ago is now worth…
• Why the next 4 weeks are going to be big for Barclays shares

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Barclays. 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.

Just the job

The £942m FTSE 250-listed stock is a specialist in later life advice, offering retirement income products such as annuities, drawdown, and equity release lifetime mortgages.

Equity release has been the worry for investors since the summer, when the Bank of England’s regulatory arm, the Prudential Regulation Authority (PRA), issued a three-month consultation process on plans to introduce more stringent capital requirements for insurance companies, to ensure they hold sufficient capital to protect themselves against a future house price crash.

What a nerve

As I wrote in September, the Just share price plunged 30% as a result, as investors feared it might have to re-insure some of its book, issue debt, or raise equity as a result. I kept my nerve and hailed it a brave buy. Trading at just 5.7 times forecast earnings, with a prospective yield of 4.5% and chunky cover of 4.3, I’m glad I did!

I also wrote: “Dividends payouts are on hold for now, but will hopefully flow later. The lifetime mortgage issue seems very much in the price and, if you’re willing to gamble, the stock could fly if it finds a resolution.”

Regime change

It’s flying today after the PRA issued a policy statement stating that, as Just puts it, “transitional measures for technical provisions for pre-2016 business will be recognised over the remaining transitional period to 31 December 2031.” The new regime comes into force on 31 December 2019, giving the group breathing space to sort out its new capital structure. It has already aligned new business pricing with the anticipated capital requirements.

Management grabbed the opportunity to highlight the company’s recent strong performance, including a 44% increase in group retirement income sales during the nine months to 30 September. It said the £1.4bn merger with Partnership in 2016 has brought efficiency gains and pricing discipline, expanding new business margins from 3.3% in 2015 to 10.2% in the six months ending 30 June.

Group CEO Rodney Cook welcomed the greater clarity and said the regime is considerably less onerous for Just, particularly for older business. “The outcome is well within the range of what we have been planning for.”

Just in time

With equity release, pensioners raise capital against their homes, with the debt repaid when they die or go into care. A house price crash threatens insurers as they may get less back when they sell, but I always felt the risks were overstated. Just is now protected if the price of every house in its portfolio fell by 35% overnight and remained there indefinitely. Yes, house prices could fall that much, but like stock markets, they tend to recover over the years.

Just was a market darling once, and it is again today. The time to buy was when I tipped it in September (just sayin’) but it still looks an attractive income and growth stock to me. Just the ticket.

The post Just Group has leapt 20%. And I told you to buy it appeared first on The Motley Fool UK.

More reading

• I asked ChatGPT for the best stock to buy in my ISA for passive income. Here’s what it said…
• Are you secretly paying tax rates of 83%? Find out here!
• Investors can’t stop buying these UK shares
• £15,000 invested in red-hot Scottish Mortgage shares 1 month ago is now worth…
• Are IAG shares the ultimate FTSE 100 volatility play? 

harveyj has no position in any of the shares mentioned. 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.

Indeed, today the company, which provides services to help retirees manage their finances, reported a 40% year-on-year increase in retirement product sales for the nine months to the end of September. This includes a 32% increase in so-called lifetime mortgage (LTM) sales, which are facing scrutiny from regulators. 

Regulators are worried that the sales of these products present a risk to the financial system because of the way they are structured. They let a homeowner borrow money against the value of their house as a form of annuity. Capital is only due for repayment when the homeowner dies. The company that sold the LTM can then sell the home to recoup the funds. These products are particularly lucrative for providers, but they have a sting. If the house used for security falls in value, the provider has to take a loss. 

Regulators are worried that in the event of a housing market downturn, losses on these products could spiral, sending shockwaves across the financial sector as companies try to balance the books. As a result, it had been speculated that Just would be forced to raise nearly £500m to protect its balance sheet — indicating a rights issue equivalent to roughly half the group’s market cap. 

While we still don’t know what action regulators will require Just and its peers to take, a recent announcement revealed the implementation date for the final proposals would not be before 31 December 2019. This should give Just “greater flexibility to execute any necessary capital management actions.” 

With some of the uncertainty surrounding LTM products now lifted, I think Just could be an interesting ‘buy’ after recent declines. With the shares changing hands for just 5.6 times forward earnings and 0.5 times book value, there’s already plenty of bad news baked into the stock and a wide margin of safety for investors. 

Still Trying

At the beginning of this month, I picked out homebuilder Galliford Try (LSE: GFRD) as my top stock for October. While the shares have struggled to gain traction after my recommendation, I’m still optimistic about the outlook for the group. 

Even though the outlook for the UK’s homebuilding sector is darkening (as proven by the recent profit warning from peer Crest Nicholson), I’m confident that Galliford remains a ‘buy’. The bargain-basement valuation is the main reason why I’m attracted to the business. Right now, the stock is changing hands for only 6.4 times forward earnings, which is, in my view, a steal. The rest of the homebuilding sector is trading at a median P/E of 8.1. There is also a dividend yield of 8% on offer, covered twice by earnings per share. A yield at this level usually indicates dividend stress. However, a recent fundraising has shored up the firm’s balance sheet, so I believe the risk of a dividend cut in the near term is low. 

So, if you’re looking for a cheap income stock, with exposure to the UK’s undersupplied housing market, Galliford ticks all the boxes for me. 

The post Why I believe these former market darlings could offer amazing value today appeared first on The Motley Fool UK.

More reading

• I asked ChatGPT for the best stock to buy in my ISA for passive income. Here’s what it said…
• Are you secretly paying tax rates of 83%? Find out here!
• Investors can’t stop buying these UK shares
• £15,000 invested in red-hot Scottish Mortgage shares 1 month ago is now worth…
• Are IAG shares the ultimate FTSE 100 volatility play? 

Rupert Hargreaves owns no share mentioned. 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.

Management is talking with other parties who might be interested in the format, but there’s no guarantee another channel will make an offer. The cancellation is not expected to have an impact on this year earnings, but it is likely to hit the next fiscal period. 

However, despite this setback, I’m still positive on the outlook for the company.

Look past the income

As I have covered before, I believe that Entertainment One’s real value is to be found on the group’s balance sheet, specifically, the value of its content library. 

At the end of March 2017, an independent evaluation put the value of this asset at $1.7bn, or around £1.3bn. At the time of writing, the firm’s market value is just £1.32bn, which implies (if the value of the content library is stripped out) there’s no value on Entertainment One’s future income stream. With this being the case, it’s clear to me that shares in the content company are a steal today.

As my Foolish colleague Royston Wild pointed out at the beginning of last month, Entertainment One’s Peppa Pig franchise has continued to drive growth at the group with earnings in its Family division predicted to have risen 50% year-on-year for the fiscal year to the end of March. 

Based on management’s upbeat forecast, City analysts are forecasting that Entertainment One will report earnings growth of 19% in the year ended March, followed by an expansion of 14% in fiscal 2019, which more than justifies the stock’s current forward P/E of 14.

Looking on these numbers and considering the hidden value in the group’s content portfolio, I believe shares in Entertainment One seem too cheap to pass up at current prices. 

Dirt cheap

Another stock that looks to me to offer hidden value is Just (LSE: JUST). The investment case for this insurance and financial services group is simple… the shares are dirt cheap. 

On every single metric, the company looks undervalued. It’s trading at a price-to-book value of 0.8 and an enterprise-to-earnings, before interest tax depreciation and amortisation value (EV/EBITDA), of 3.4. For some comparison, the market median EV/EBITDA ratio is 11.4! The forward price to earnings ratio is 8.6. 

Too pessimistic? 

On all metrics, the company looks undervalued by around 50% compared to the broader market, that is apart from dividend yield, where 2.8% is below the market average. Still, as the dividend is covered four times by earnings per share, there’s plenty of scope for management to hike the payout further as earnings grow.

Unfortunately, earnings growth is not set to be the group’s strong point. Analysts have pencilled in a fall in earnings per share of 16% in 2018, but growth is expected to return in 2019 with net income rising by 11%.

In my opinion, this bad news is already factored into the stock. What’s not factored in, however, is any possibility of good news. And I believe if the company does perform better than expected, shares in Just could leap substantially higher.

The post Two dirt-cheap FTSE 250 growth stocks I’d buy with £2,000 in June appeared first on The Motley Fool UK.

More reading

• I asked ChatGPT for the best stock to buy in my ISA for passive income. Here’s what it said…
• Are you secretly paying tax rates of 83%? Find out here!
• Investors can’t stop buying these UK shares
• £15,000 invested in red-hot Scottish Mortgage shares 1 month ago is now worth…
• Are IAG shares the ultimate FTSE 100 volatility play? 

Rupert Hargreaves owns no share mentioned. 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.