Why AMP Limited shares are hitting new highs

What:  Insurer and diversified financial services provider AMP Limited’s (ASX: AMP) share price has hit a new 52-week high. Despite the milestone the stock price has actually only gained 4.7% over the past year, thereby significantly underperforming the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) which has gained 12.7%.

So what: While the one-year holding period return is muted, it has been a rocky and volatile 12-month period for shareholders. In June 2013 the stock dropped from over $5 per share to the low $4’s. The stock then regained some composure before again plunging back down to nearly $4 in early February this year. In the past four months the stock has proceeded to rally 27%!

Now what: AMP can in many ways be thought of as two distinct businesses: an insurance company and a financial services provider. The company has faced certain problems which are specific to its insurance division, but that have nevertheless affected the overall profitability of the group. It would appear that the market is now looking past these near term insurance problems and focussing on the wider potential of the group.

Admittedly, it hasn’t just been AMP who has underperformed, with peers IOOF Holdings Limited (ASX: IFL) and Insurance Australia Group Limited (ASX: IAG) returning just 4.8% and 6.7% respectively over the past year. Assuming equity markets remain buoyant and that insurers push through price hikes, then these companies should face brighter times ahead and these three stocks should be on investors’ watchlists.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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