The ASX 200 share ready to bounce from 10-year lows: expert

This stock has been a poor performer even for long-term investors. But the ducks are now lining up for a valuation surge, reckons one analyst.

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Regular readers will know long-term buy and hold is the philosophy espoused at The Motley Fool.

But of course, this doesn’t mean that every stock you hold for the long run will end up a winner.

In fact, it’s fantasy for both professional and amateur investors to expect all their holdings to make them money.

One example of a long-term stinker is Insurance Australia Group Ltd (ASX: IAG).

The share price for this insurance giant has halved in the past 3 years. In fact, it has now dipped to a level not seen since August 2012.

Yes, you could have held this stock for almost a decade and it would be back to where it started.

But one fund has suggested that the company may finally be ready to break out of the slump:

‘Significant share price upside from current levels’

WAM Leaders Ltd (ASX: WLE) analyst Anna Milne told clients in a memo that it’s no wonder IAG has had a tough time of late.

“It has been a difficult few years for IAG, given the bushfire season in late 2019, the onset of coronavirus and resultant business interruption claims currently being disputed, and more recently, the severe flooding in New South Wales and Queensland this year.”

But macroeconomics is finally lining up to favour insurers, who enjoy higher returns on their capital when interest rates rise.

“In what is an extremely volatile environment, the insurance sector provides defensive characteristics at below market valuations,” Milne said.

“This, combined with compelling fundamentals and cautious market sentiment, suggests significant share price upside from current levels.”

And IAG will be no exception, the Wilson team feels.

“IAG’s share price is at close to 10-year lows and we believe it is poised to break out of this trough over the coming months,” said Milne.

“Underlying business momentum is starting to show, with premium rate hikes continuing to outpace claims while inflation pressures and higher bond yields further supporting earnings.”

There is also potential release of a $1.2 billion provision previously set aside for business interruption claims.

There’s some agreement with Wilson among the wider professional community.

According to CMC Markets, six out of 10 analysts are rating IAG shares as a strong buy. One out of the remaining four recommend it as a moderate buy.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Insurance Australia Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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