Interactive Investor

eyeQ: a tale of two insurers - L&G vs Aviva

interactive investor has teamed up with the experts at eyeQ who use artificial intelligence and their own smart machine to generate actionable trading signals. Here's what it says about these popular income stocks.

6th March 2024 11:07

Huw Roberts from eyeQ

"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ

Legal & General

Trading signal: strategic long-term model

Model value: 246.62p

Fair Value Gap-3.6% discount to model value

Model relevance: 84% 

Data correct as at 6 March 2024. Please click glossary for explanation of terms.

Today’s main event is clearly Chancellor Jeremy Hunt’s budget statement. But this morning insurer Legal & General Group (LSE:LGEN) posted their results, and they disappointed. Earnings undershot and the company did not announce a share buyback as some had hoped.

But while the stock sold off, from the big picture perspective L&G looks comparatively insulated. Why?

  • macro relevance is high at 84%
  • the stock trades 3.6% below our model value
  • given where economic growth, inflation, credit conditions are at, our smart machine says the stock ‘should’ be at 246.62p
  • that’s not a massive Valuation Gap but it does provide some insurance (pun intended)

In contrast, those same numbers for Aviva (LSE:AV.) show 82% relevance, a 423.77p model value and therefore the stock currently looks 6.58% rich to aggregate macro conditions.

This reflects the fact that over the past few months Aviva has performed better than L&G. Tomorrow, it’s Aviva’s turn to announce earnings, and analysts are optimistic they will post another decent set of results. From a bottom-up perspective (company fundamentals), Aviva looks the better bet.

That’s important but, from the macro perspective, the picture is reversed - Aviva has priced in a lot of good news, L&G has discounted a fair degree of bad news.  

Investing will always be a blend of bottom-up analysis of company fundamentals, plus an understanding of the big picture environment these companies operate within.

Traditionally retail investors focus exclusively on individual analysts’ opinions for the former. The aim of eyeQ is to deliver the latter using a smart AI based machine that offers unbiased mathematical perspectives. The aim is to make it easier for investors to see both sides.

Source: eyeQ. Past performance is not a guide to future performance.

Useful terminology:

Model value

Where our smart machine calculates that any stock market index, singe stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.

Model (macro) relevance

How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.

Fair Value Gap (FVG)

The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.

Long Term model

This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.

These third-party research articles are provided by eyeQ (Quant Insight). interactive investor does not make any representation as to the completeness, accuracy or timeliness of the information provided, nor do we accept any liability for any losses, costs, liabilities or expenses that may arise directly or indirectly from your use of, or reliance on, the information (except where we have acted negligently, fraudulently or in wilful default in relation to the production or distribution of the information).

The value of your investments may go down as well as up. You may not get back all the money that you invest.

Equity research is provided for information purposes only. Neither eyeQ (Quant Insight) nor interactive investor have considered your personal circumstances, and the information provided should not be considered a personal recommendation. If you are in any doubt as to the action you should take, please consult an authorised financial adviser. 

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.