I started loading up on out-of-favour insurer Aviva (LSE: AV) (NYSE: AV.US) three or four years ago, until it became biggest single bet in my portfolio.
I reasoned that it was a big, solid company whose share price had been badly knocked by the eurozone crisis, and looked ripe for a re-rating.
The share price didn’t budge for a couple of years, but I wasn’t complaining, because it was pocketing a mighty 8.1% yield at the time.
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I had money in a savings account earning just 2%, and nobody was going to re-rate that (quite the reverse, as it turned out).
The Wilson Years
I admired new chief executive Mark Wilson’s attempts to turn the ship around, slashing internal debt, offloading non-core underperforming assets, slashing middle management, and boosting sales in the UK, Turkey and Asia.
Wilson has delivered a cash generative, financially healthy business, while I’ve enjoyed a 60% increase in the share price over the past two years.
My bet has paid off, but I reckon there is more to come. Aviva still has some catching up to do with runaway rivals L&G and Prudential. With cash flow up 65% and the dividend hiked 30%, it finally has momentum on its side.
Lloyds Should Motor
Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) is another contrarian buy that is steadily turning itself into a momentum stock.
Although I wouldn’t buy Lloyds expecting runaway share price growth, those days seemed to be over for the banking sector.
Lloyds has turned its back on the flash side of the industry, investment banking, in favour of the more reliable, if humdrum, UK retail banking sector. If this was a car, it would be a Ford Focus.
Nothing wrong with that if it gets you from A to B.
Brrm, Brrm
Lloyds still needs some fine tuning, with 24% of the bank still held by the taxpayer, worth £13.5bn. The share price should have a bit more poke when that weight has been offloaded.
Its bodywork is in far better condition than before, now that it has repaired its capital position and met its regulatory targets.
And with a dividend yield predicted to go from 0% to 5.2% between now and the end of next year, this bank still has plenty miles in the tank.
