The share price of insurer Aviva (LSE: AV) has been battered so far this year. The shares have fallen by 35%. A decline pretty much in line with one of its nearest rivals, Legal & General.
Why all is not lost
Investors may be tempted to think this is a reason not to invest. Surely the shares could fall further? Well yes, they could. But I believe they could also bounce back strongly and as Warren Buffett says, it’s best for an investor to be greedy when others are fearful. With that logic in mind, now could be an ideal time to invest.
The insurer is in a strong position financially with a solvency ratio as of 13 March of 175% and a net cash position of £2.4bn.
Aviva also has a strong brand, which may be helpful at a time like this, alongside the fact that even during a pandemic people need insurance, giving the shares defensive qualities.
The banks aside, larger financial companies aren’t cutting their dividends, unlike other sectors. Hopefully, that will continue to be the case as Aviva is a high-yielding share with growth potential.
A cheap share in a battered industry
The shares of housebuilder Taylor Wimpey (LSE: TW) also look too cheap to ignore, I feel. They trade on a P/E of six.
The housebuilder has drawn down £550m of its revolving credit facility and as of 23 March, it had £165m in net cash. This is a strong position to be in and should see it through the coming months of uncertainty. That’s especially so as it has culled its dividend and discretionary spending on land. The dividend payments alone, which were due over the next couple of months, will save it £485m.
In 2019, the group built 15,719 homes, around a 5% increase on 2018. Its average selling prices were up just a bit at 1%. Clearly though, it is a strong operator in an attractive but cyclical industry. The shares are now too low in my opinion.
Looking at the bigger picture, once the crisis passes, housebuilders will benefit from an ongoing issue over the inadequate UK housing supply, I believe.
Too cheap to ignore
ITV (LSE: ITV) seems to face some pretty big structural problems as far as its business model is concerned. But I feel the company shouldn’t really be worth 40% less than it was just a month ago. I think the sell-off in the shares is overdone.
Yes, Amazon and Netflix are on the rise. But that’s hardly a new threat. The new threat is from Covid-19, which is having a significant impact on advertising, ITV’s main source of revenue. But there are reasons for optimism. At the beginning of March, it announced it had finished the year with net revenues up 3% at £3.3bn, driven by growth in the Studios business.
The diversification away from broadcast advertising revenues towards a ‘more than TV’ strategy could boost the group in the future.
With the shares now trading on a P/E of just 4.5, I think they offer potential for an investor. To me, the shares are too cheap ignore.
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Andy Ross owns shares in Legal & General. The Motley Fool UK has recommended ITV. 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.
Motley Fool UK 2020