Is now the time to buy QBE Insurance Group Ltd?

Following five disappointing years for investors, QBE finally looks set for substantial upside.

| More on:

Investors in QBE Insurance Group Ltd (ASX:QBE) have been through a tough time since 2008 as the company’s share price fell from $35 down to $11 today. However, can the business recover its glory days and reward patient investors?

QBE looks to have significant upside as a result of major restructuring and consolidation undertaken in 2013 and 2014 and I expect strong earnings growth over the next couple of years. CEO John Neal has stated that the recent restructuring initiatives are performing well.

QBE’s strong business model is highly leveraged to a stronger U.S. economy, a higher U.S. dollar and higher long-term interest rates in the US and Europe. As these factors materialise over the coming years, QBE is poised to see a significant increase to earnings.

Furthermore, the underlying business should continue to improve as insurance margins increase and insurance premiums are raised. A series of natural disasters between 2011 and 2013, along with lower investment returns and costs associated with implementing acquisitions substantially reduced insurance margins. Insurance margins are set to improve in the medium-term.

QBE is also implementing a cost reduction program which is forecast to reduce operating costs by $250 million per year.

Following another earnings downgrade in December 2013, QBE management cannot afford another earnings disappointment. Another downgrade would likely set the company’s shares plunging. In my view this is unlikely and I believe there is substantial upside to the current share price over the medium term.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

Motley Fool contributor Bradley Murphy does not own shares in any company mentioned in this article. 

More on ⏸️ Investing