If you're looking for new additions to your investment portfolio in June, then it could be worth considering QBE Insurance Group Ltd (ASX: QBE) shares.
That's because analysts at Goldman Sachs believe that big returns could await investors who buy the insurance giant's shares at current levels.
Why are QBE shares a buy?
Goldman has named a few reasons why investors should buy the company's shares today.
The first reason is that "QBE has the strongest exposure to the commercial rate cycle." Given the momentum that is being seen in the commercial premium rate cycle, Goldman expects QBE to benefit greatly.
Another reason that the broker is bullish on the insurer is that "QBE's achieved rate increases continue to be strong & ahead of loss cost inflation."
And a third reason is that its "valuation [is] not demanding." Goldman estimates that its shares are changing hands for just 9.8x estimated FY 2024 earnings of US$1.22 per share (A$1.84 per share).
Big returns expected
Goldman has a buy rating and $20.90 price target on QBE's shares. This implies potential upside of 16% for investors over the next 12 months.
In addition, the broker is forecasting a 62 US cents per share (93.3 Australian cents per share) dividend in FY 2024. This represents a 5.2% dividend yield based on its current share price and boosts the total potential return beyond 20%. A slightly larger 63 US cents per share dividend is then expected in FY 2025.
Is anyone else bullish?
Goldman isn't alone in its view that QBE's shares are good value at current levels.
UBS currently has a buy rating and $21.00 price target on its shares. Whereas the team at Citi has a buy rating and $20.00 price target on its shares and Morgans has an add rating with a $20.00 price target. These all imply a double-digit upside from where its shares trade today.
Commenting on its add recommendation, Morgans said:
With strong rate increases still flowing through QBE's insurance book, and further cost-out benefits to come, we expect QBE's earnings profile to improve strongly over the next few years. The stock also has a robust balance sheet and remains relatively inexpensive overall trading on 8x FY24F PE.
Overall, the broker community appears to believe that the insurance giant could be a quality option for investors. Especially those looking for a source of income from the share market given its 5%+ dividend yields.
