Is it too late to buy this hot insurance group?

Outstanding return of 25% in 16 weeks makes this a must-watch stock.

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What:

Insurance and wealth management group AMP Limited (ASX: AMP) is up over 25% in just four months. AMP’s business consists of an investment portfolio, asset management platform, and a network of financial planners that market the company’s products to individuals and superannuation funds.

Why:

There doesn’t appear to be any one reason for the sharp rise from $4.10 to $5.35, but rather a combination of tailwinds that the market is starting to understand. AMP is poised to benefit from the boom in superannuation assets, which is expected to grow by 9% annually for the next 15 years. AMP’s superannuation products are well regarded and the group’s large customer base is traditionally stable.

The company’s ‘wealth protection’ division has been a drag on earnings and the share price in recent years, but the recent trading update confirmed that the segment is on track to meet guidance this financial year. This should prove to be a catalyst for growth as it essentially reduces the biggest drag for the business.

What now?

There is little company-specific concerns to stop the share price accelerating towards $6 in the short term. Over the longer term, AMP will benefit from the aging population’s increased focus on developing adequate retirement income in these uncertain times. Long-term investors will be pleasantly rewarded by AMPs 5% partially franked dividend yield and encouraged by estimates of mid to high-teens earnings per share growth for the next three years.

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Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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