Goldman Sachs says QBE shares are dirt cheap

This insurance giant has been tipped to generate big returns for investors.

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If you're looking for cheap ASX shares to buy, then QBE Insurance Group Ltd (ASX: QBE) shares could be worth considering.

That's the view of analysts at Goldman Sachs, which see significant value in the insurance giant's shares at the current level.

What is Goldman Sachs saying about QBE shares?

In response to the company's half-year results, Goldman has retained its buy rating with an improved price target of $18.09.

Based on its current share price of $15.46, this implies a potential upside of 17% for investors over the next 12 months.

In addition, making things even sweeter for investors, the broker is forecasting dividend yields of 4.1% in FY 2023 and then 5.9% in FY 2024.

Why is it bullish?

As well as being pleased with the company's performance during the first half, the broker sees plenty of value in QBE shares for six key reasons.

Goldman explains:

We are Buy rated on QBE with a revised 12-m PT of A$18.09. We like QBE because 1) Top line growth very strong – driven by both rate and volume 2) Rate earned over the next 12 months will like be well ahead of moderating inflation to offset reinsurance / perils cost pressure and likely support improving underlying trends 3) FY23 guidance of 94.5% COR retained (ex Enstar) implying 91.5% for 2H23 – leaves little room for error albeit could be offset by one off benefits noting QBE targets a reported COR e.g. reserve releases, expenses etc. 4) Opportunity for North America COR to <95% expected by 2025 – this should support group COR. 5) Capital strong with dividend expected to be within payout ratio range in FY23. 6) Valuation not demanding at P/E of 9x on FY24E which is low vs recent history.

All in all, this could make QBE one to consider if you're looking for exposure to the insurance sector.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. 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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