LON:AV. | Stock Ranks - Legal & General, Aviva

1st Apr '22 by JeffG

3 comments 778 reads

I've just updated the stock ranking on my investment spreadsheet, and was surprised to see Legal & General ranked 46 with a 'Quality' score of 19 - nudging junk status by this metric. Similarly Aviva has a disappointing stock rank of 48 with a 'Quality' score of 23 also sitting in the 'junk' half of the graph.

I am disproportionately long of both in my portfolio, and wondered if this discovery should ring alarm bells and did a deeper dive on both. Maybe I'm missing something, but I still like them, as do other stock pickers it would seem.

I posted a few years ago that I considered them both to be an inflation defensive play. They are offering yields of 7% and 6.2% respectively, with dividend covers of 1.8 and 1.6, balance sheets appear sound with other metrics heading in the right direction, imo.

I've been recording stock ranks against my portfolio for a couple of years now and must admit to being a little cynical but am reluctant to aggressively challenge their worth. They seem to me to be more of an historic trend notation rather than a forward indicator, unless I'm missing something?

I would be grateful to hear others' thoughts re LGEN and AV. .

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aflash

1st Apr '22

An ideal report on insurance companies would contain the Combined Ratio, Net Loss Ratio, Embedded Value, Dividend cover, Bond duration of the investment portfolio and details of what the company insures in addition to the usual metrics.

These two companies are hybrids offering savings products so Assets Under Management, inflows or outflows and service are relevant too.

The Stock Ranks compare all companies using the same metrics so have their weaknesses.

However it is the only data base I use that enables one to compare across jurisdictions. This I do with similar companies in America and Canada.

On that basis they are O.K.

Aviva (AV.) is getting too popular but we are told Amanda Blanc, the CEO is going to change everything. I have my doubts, having dealt with the company through my work but I nearly always have a position, selling some above 5 pounds and buying more under 3,50.

LGEN is less familiar but statistically measures up.

Neither merits the Holy Grail, so I hold a basket including some excellent North American companies in the same sector. Manulife (TSE;MFC). Intact (TSE;IFC) bought RSA and I have high hopes, Stewart NY (STC), Fidelity National NY (FNF) among others with similar market cap and growth rates.

Investor psychology is crucial in a relatively stable but competitive arena. Ping An Insurance has a near monopoly on a growing middle class but I have had to trade in and out because of negative sentiment toward China.

Edward Croft

2nd Apr '22

If there's one sector that works poorly on standard valuation and quality metrics it's the financials sector... banks and insurers ideally need another lens. I would be guided by your own analysis in this sector if you have good knowledge.

Regarding your comment about the StockRanks being a "historic trend notation rather than a forward indicator".

Predicting the future is a pretty difficult task and we've never pretended to. The StockRanks are designed to rank shares for their exposure to factors that have been proven to beat the market in the past (i.e. Q, V and M). If the future rhymes with the past then high QVM portfolios will outperform... if it doesn't, they won't.

There are huge numbers of community members who have succeeded with the StockRanks, and plenty of illustrations publicly around the site - e.g. my own NAPS portfolio at 17% annualised, or our performance tracking of the 90+ ranks at 15% annualised.

Markets do tend to get more efficient over time, so I don't expect the tremendous outperformance attained in the last 9 years of the StockRanks to continue indefinitely. But factors do have persistence in the right market environments. It does seem like the UK and Europe are especially prone to having strong factor spreads - possibly due to the dominance of old fashioned fund management practices in these markets.

Rusty2

4th Apr '22

I set up a NAPS folio every month since April 2021, they have not done well compared to the FTSE All share index. April 21 is around 17% below the index, June 21 is around 15% down, the only one that is above is Feb 22.

I hold Legal & General (LON:LGEN) and sold Aviva (LON:AV.) last week, LGEN looks better value but AV will pay a dividend soon. If you study their charts I think these are good stocks to buy when they are down, you will get higher dividends as well.

Stock ranks - Legal & General, Aviva

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JeffG

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