In a market that may or may not be crazy, what is a value-oriented investor to do? Most important is to stay true to value-oriented principles. Finding good companies whose shares are meaningfully undervalued (mispriced) by an AI-obsessed market remains key to long-term investing success. I like Aviva Plc (AVVIY), explains Bruce Kaser, editor of Cabot Value Investor.
In some ways, the more AI-obsessed the market becomes, the better it is for contrarian investors as other stocks become more underpriced. Plus, value stocks won’t always lag. Last week, for example, our selection of buy- and hold-rated stocks gained an average of 3%, better than the S&P 500’s 1.7% gain.
Investors are human, and it can be very frustrating to watch “everyone else” get rich on Nvidia (NVDA) shares. One salve, which runs counter to all things Warren Buffett but acknowledges that nobody else is Warren Buffett, is to buy a token amount of Nvidia shares. This allows the investor to participate in any future surge but also minimizes the damage if Nvidia’s fate unravels.
Markets can remain crazy for a long time. When and how far they unravel is unknowable. But eventually, some unpredictable event will come along to darken investors’ moods enough to crush a crazy market. Investors in 1999, 2007, and 2019 felt similarly ebullient to today’s investors, but only a year later their attitudes were different.
Aviva Plc (AVVIY)
As for Aviva, the London-based company specializes in life insurance, savings, and investment management products. Amanda Blanc, hired as CEO in July 2020, is revitalizing Aviva’s core UK, Ireland, and Canada operations following her divestiture of other global businesses. The company now has excess capital which it is returning to shareholders as likely hefty dividends following a sizeable share repurchase program.
While activist investor Cevian Capital has closed out its previous 5.2% stake, highly regarded value investor Dodge & Cox now holds a 5% stake. That provides a valuable imprimatur as well as ongoing pressure on the company to maintain shareholder-friendly actions.
Aviva shares rose 6% in the past week and have 21% upside to our $14 price target. Based on management’s guidance for the 2023 full-year dividend, which we believe is a sustainable base level, the shares offer a generous 7.3% yield. We anticipate a dividend increase for 2024. On a combined basis, the dividend and buybacks offer more than a 10% “shareholder yield” to investors.
Recommended Action: Buy AVVIY.
