43.2 Fantastic Reasons That May Make Aviva plc A Buy

Royston Wild reveals why shares in Aviva plc (LON: AV) look set to march higher.

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Today I am spelling out why I believe shares in Aviva (LSE: AV) (NYSE: AV.US) should continue to move skywards as the firm’s transformation plan delivers stunning earnings growth.

Earnings expected to explode from this year

Shares in Aviva have exploded higher since April’s one-year lows, gaining 50% in the process and striking their highest since July 2011 above 440p in recent days. And I believe that the firm’s stock should keep heading higher as earnings surge — the City’s analysts are expecting earnings per share (EPS) to race to 43.2p in 2013, rebounding from losses of 15.2p per share last year.

The company’s half-year report in August revealed the sterling work which management has accomplished as part of its broad restructuring initiative, with cost-cutting measures continuing to run ahead of schedule. Indeed, a 9% reduction in operating expenses during January-June, to £1.53bn, helped to drive a 5% improvement in operating profit to £1.10bn. Restructuring costs also dropped 10% to £164m during the period, and Aviva expects this to fall even further from next year onwards.

Should you invest £1,000 in Aviva right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Aviva made the list?

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Although Aviva’s restructuring plan was mainly responsible for the profits improvement during January-June, the company also proved that it is still a tough customer when it comes to generating new business. Indeed, the insurer saw the value of new business surge 17% in the first six months of the year, to £401m, underpinned by a 16% improvement in new UK business to £211m.

Aviva continues to benefit from its stellar reputation in the domestic insurance space, while the firm’s strength is also built around its diversity across a multitude of markets including the car, home, travel, health and life arenas.

The City’s  smashing earnings projections for 2013 currently leave Aviva trading on a P/E rating of 10.2, providing a sizeable discount to the current forward average of 14.6 for the complete life insurance sector and 16.5 for the wider FTSE 100.

And as EPS is expected to roll 9% higher in 2014, to 47.2p, this leaves Aviva dealing on a P/E rating of 9.3, just below the benchmark of 10 which represents stunning value for money. With a price to earnings to growth (PEG) readout bang on the bargain threshold of 1 for next year, too, I believe that Aviva is a great pick for those seeking an exceptional turnaround play at a great price.

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Royston does not own shares in Aviva.

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