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Investors stand by Suncorp

Investors have stuck by Suncorp (ASX: SUN) despite the Australian Financial Review saying that “customers are letting their insurance policies lapse” and making more claims.

Only if significant growth is highly anticipated, will a company with 22 times earnings still be a bargain for investors. Suncorp has this week shown that investors are expecting large amounts of growth to continue into the near future.

After the GFC, Suncorp was faced with huge cost blowouts from its “bad bank” portfolio which consisted mainly of commercial property loans. In 2009, the amount of the loans stood around $17 billion but has now, thanks to a ‘benign’ year of insurance payouts, been repaid.

The epic turnaround over the past five years has been a huge success for the company and investors are now jumping back on the bandwagon. In the past 12 months, shares in the company have risen a huge 57% plus dividends.

It’s no surprise investors are jumping aboard because in the half year to December 31 2012, the company reported NPAT up 47% and expected similar results in the second half. However, the sale of $1.7 billion of the remaining $2.5 billion bad bank debt and integration of the rest of the portfolio into its existing business will cost the company much of its second half gains.

With over 60% of the company’s revenue coming from insurance products, a slowdown could affect the underlying profit of the company but it is unlucky to jeopardise its long term delivery of products to an underinsured nation. With the likes of NIB Holdings (ASX: NHF), QBE (ASX: QBE) and Insurance Australia Group (ASX: IAG) reporting market beating returns for the past year, more investors believe the insurance industry is on its way up.

Foolish takeaway

There are plenty of big companies that provide exposure to many insurance products but there are also small caps that offer a fabulous upside as well. Tower (ASX: TWR) and Challenger (ASX: CGF) are two outsiders that have provided massive capital growth and, based on current prices, are much cheaper than their bigger counterparts.

The Australian Financial Review says “good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit.” Get “3 Stocks for the Great Dividend Boom” in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!

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Motley Fool contributor Owen Raszkiewicz owns shares in NIB Holdings.

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