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Given the rapid recovery of the ASX share to its previous highs, you might think that the opportunities to snap up a share at a bargain price would be severely limited.
But in this sea of high valuation multiples there are also valuable niches.
QBE Insurance Group Ltd (ASX: QBE) saw its share price decline by 5% over the past month and is now trading at a price-to-earnings (P/E) ratio of 9.4.
That means you’re paying less than $10 for every dollar of profit this insurance giant makes. For comparison, the ASX 200 is paying nearly $18.50 at the time of writing.
In other words, this ASX insurance giant may just be too cheap to ignore. Let’s see what the experts have to say.
Why QBE could be a cheap stock on the ASX
QBE’s recent price decline could represent an attractive entry point for investors based on analysts’ price targets for the stock.
Goldman Sachs analysts are optimistic about QBE’s prospects and maintained their buy rating in an August note.
The broker stresses that QBE’s rate increases continue to “stay ahead of claims inflation”, a key factor in maintaining profitability in the insurance sector.
In addition, QBE’s ability to effectively pass on interest rate increases positions it well to withstand inflationary pressures.
One reason for the buy recommendation is that QBE’s valuation is “undemanding”, which to me suggests it is a cheap ASX share.
The firm recommends the stock as a Buy with a price target of $20 per share, suggesting a potential upside of around 24% over the next 12 months.
Meanwhile, CommSec also recommends the consensus to buy QBE.
Dividends could increase attractiveness
With QBE, it’s not just about playing with price – we also need to consider the dividend yield.
At the current share price, the ASX bargain stock’s dividend yield is 4.4%. But we’re not getting paid for what’s already happened.
Goldman Sachs forecasts QBE’s dividend to increase to 81 cents in the 2024 financial year and 86 cents the following year.
These forecasts correspond to a dividend yield of 5% and 5.3% respectively.
This is above consensus forecasts. According to CommSec, consensus estimates for this year are for a payment of 76.7 cents per share.
If QBE meets Goldman’s expectations, investors could earn a total return of about 28 percent over the next year, taking into account both capital gains and dividends.
Can it succeed? The insurance giant doubled its net profit to $802 million in the first half of fiscal 2024. Gross premium income also increased by 1.9%.
Looking ahead, QBE’s FY25 forecast includes a combined operating ratio of around 93.5% and expected GWP growth of 3%.
In my view, this is positive for this bargain ASX stock.
Stupid realization
QBE’s recent share price drop could be a tactical buying opportunity for those looking to add a bargain ASX share with income potential to their portfolio. Experts are also bullish on the company.
QBE shares have risen 9% over the past 12 months.
