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
by 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
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
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.
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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.
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