Why IAG shares are a cheap buy right now: expert

IAG continues to trade within range this year.

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Key points
  • IAG shares are rangebound today on no news
  • With shifting interest rates and investor behaviour, some think that insurance shares like IAG might be on the cheap
  • IAG is up 14% this year to date

Shares in Insurance Australia Group Ltd (ASX: IAG) are rangebound today, trading flat at $4.87 at the time of writing.

After a flat year on the chart, IAG now trades back in line with levels seen in October 2021. It's trading up from 52-week lows of $4.14 on 17 June. See this price action on the chart below.

TradingView Chart
A woman looks questioning as she puts a coin into a piggy bank.

Image source: Getty Images

Cheap or expensive? IAG in the spotlight

Despite a relatively flat year in terms of price action, the IAG share price still trades on a price-to-earnings ratio (P/E) of 36.3 times.

That's well ahead of peers in the GICS Financials Industry, who trade on a median 19.7 times. Looking ahead, it's priced at a forward P/E of 14.4 times per Refinitiv Eikon, in line with the industry.

The company has a forecasted price-to-book ratio (P/B) of 1.77 times, in line with the industry.

There's also a respective 5.35% projected dividend yield for the next 12 months that must be factored into the equation.

With these points in mind, some argue that IAG shares are 'cheap' on a relative basis, and could present a buying opportunity.

General insurers are looking increasingly attractive to Justin Braitling of Watermark Fund Management, Livewire reports.

"Insurance margins have been under pressure with low interest rates (now reversing) and the insurance cycle has turned following a period of elevated claims," Braitling said.

"The shares are cheap, and we are moving into a hardening cycle for premiums-claims inflation on the other hand should start to ease," Braitling added.

Meanwhile, those at Wilsons are attracted to IAG's forward-looking yields, placing it in a list of 21 other names it tips to deliver yields above 3% in 2023.

The question then turns to whether the market believes IAG shares are cheap or not. And that remains to be answered at this stage.

IAG is up 14% this year to date.

Motley Fool contributor Zach Bristow 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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