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Like billionaire investor Warren Buffett, I’m a big fan of buying value stocks. Acquiring undervalued companies can boost an investor’s wealth, as they may have greater scope for capital appreciation over the long term.
FTSE 100 company revive (LSE:AV.) is a UK stock that currently offers excellent overall value. It is trading at a forward price-earnings (P/E) ratio of 8.8 times at current prices of 136 pence. This is comfortably below the index average of around 14 times.
The financial services giant also offers great value for dividend investors. Its dividend yield of 7.4% for 2023 beats the FTSE 100 average of 3.5%.
3 reasons to buy Aviva shares
Some would say that Aviva shares are dirt cheap for a reason. As consumer spending comes under pressure, demand for financial services like life insurance and investment products tends to fall.
The threat is particularly high for this operator, given its focus on the UK and Ireland (and Scandinavia). Here, the economic recession is expected to be deeper and longer than in other major economies.
However, despite these issues, I am still considering buying this value stock for my portfolio. I buy stocks based on the return I expect to earn over at least five years, usually longer. And I think the company could generate returns for investors in excess of the FTSE 100 for an extended period.
Here are three reasons why you would buy Aviva shares today.
#1: Demographic Opportunities
Populations in the West are aging rapidly. The ONS estimates that the number of Britons aged 65 and over, for example, will have shot up by 50% between 2016 and 2035.
This provides excellent opportunities for companies that make products for this demographic. Aviva, which supplies annuity, pension and life insurance products, is one such business.
#2: An Improving P&C Business
The constant improvement in Aviva’s P&C business is also very attractive to me as an investor. This uptick reflects the enormous efforts the company has made to overhaul its underwriting processes of late.
Despite intense competition, policy volumes continue to grow and gross written premiums increased 10% in the third quarter, the latest financials showed. Both new business generation and customer retention remained strong in the period. Further progress can be expected on this front as well.
#3: Excellent cash generation
Aviva is a brilliant cash generator. As of September 2022, its Solvency II capital ratio stood at 223%, more than double the regulator’s requirements. This allows you to continue paying those dividends that beat the market.
The company could also have more cash to play with in the coming years, if the government’s plans to reform Solvency II rules take effect.
This could give Aviva more firepower to pursue earnings growth through acquisitions and organic investments. It could also give the company more money to give back to investors through more share buybacks, as well as bigger dividends.
In fact, I think Aviva might be one of the best stocks to buy for future passive income. If I have extra money to invest, I’ll look to add it to my own portfolio.
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