01/19/2015 7:00 am EST
Our favorite conservative investment idea for 2015 is a Dutch insurance and wealth management company, explains contrarian investor Benj Gallander, editor of Contra the Heard.
Aegon (AEG) was on our watch list for years before we pulled the trigger in December. The credit crisis was harsh to this company forcing it to require a bailout from the Dutch government and eliminate its dividend. AEG paid off its rescue loans in full in 2011.
The low interest rate environment has caused their guaranteed income products such as annuities and segregated funds to hurt the bottom line. Interest rates will eventually move higher and this should help the corporation in the long run.
Though the majority of its business comes from the US and there is little exposure to the weakest European countries, the company is still tied to the fortunes of the euro and the European Union. This could prove bullish as eventually Europe will recover, and with it, the euro.
Aegon´s turnaround strategy has focused on shedding non-core assets, streamlining brands, improving returns on capital, bolstering the balance sheet, and optimizing its portfolio by de-risking its insurance products and increasing its focus on pension and asset management.
To date, significant headway on all fronts has been made and the reinstatement of the dividend, which pays about 4%, is evidence of that. Capital ratios have improved and leverage has dropped.
The company also expanded its popular Transamerica brand in the United States and is growing in Asia, Eastern Europe, and Latin America. The initial sell target is $20.34.