For example, since the beginning of 2010 the FTSE 100 has risen 33.8%, but over the same period shares in Aviva and Standard Life have gained 51% and 108% respectively, Prudentials have risen 183%,andLegal & General has put in the best performance, with its shares jumping a staggering 290% (all gainsexcluding dividends).
But whileundeniablyimpressive, these gains have left the insurers looking expensive, and it could be time for investors to consider taking some money off the table.
There is one main factor that suggests now could be the time to sell Legal & General, Prudential, Standard Life and Aviva valuation.
In particular, at present levels, the best performer of this group, Legal & General, is trading at a forward P/E of 15.6. This is 30% higher than the companys peak valuation in 2007, just before the financial crisis set in.Similarly, Standard Life is currently trading at a forward P/E of 19.9, nearly 60% above the companys 2007 peak valuation.
On the other hand, although Prudentials valuation is high the company trades at a forward P/E of 14.7 the companys earnings are expected to grow at a high double-digit rate every yearfor the next few years. In this case, Prudential looks to be attractively valued based on its forward growth rate.
Still, out of the whole group, only Aviva appears to be undervalued at present levels. Specifically, the company currently trades at a low forward P/E of 11.2 and the market is yet to factor in the synergies that will be achieved through Avivas merger with Friends Life Group.
Whilst Aviva, Legal & General, Standard Life and Prudential all look expensive at present levels, they are attractive yield plays. You see, due to the nature of their business long-term life insurance and asset managementthese four companies have predictable and stable income streams, making them perfect dividend stocks.
And even after recent gains, these insurers still support attractive dividend yields. In particular, Legal & General and Standard Life offer yields of 4.1% and 4.2% respectively while Aviva and Prudential offer yields of 3.3% and 2.2% respectively, at present levels.
So, if youre will to pay a premium for a market-beating dividend yield, thenAviva, Legal & General, Standard Life and Prudential coulddeserve a position in your portfolio.
However, if youre looking for undervalued income shares with the potential for capital growth, then it could be time to look elsewhere.
Here at the Motley Fool we know exactly where to look.
The Motley Fool’s new, free,income report double packis designed to help you find the market’s best income stocks.
For a limited time only,you can gettwo reports in one. Along with “How To Create Dividends For Life”, we’re throwing in a new report entitled “My 5 Golden Rules for Building a Dividend Portfolio”.
This duo is designed to help you discover the market’s best income stocks.
Justclick hereto download the free report double pack today!
Get FREE Issues of The Motley Fool Collective
Get straightforward advice on whats really happening with the stock markets, direct to your inbox. Help yourself with our FREE email newsletter designed to help you protect and grow your portfolio wealth.
By providing your email address, you consent to receiving further information on our goods and services and those of our business partners. To opt-out of receiving this information click here. All information provided is governed by our Privacy Statement.