Why Aviva could be one of the FTSE 100’s best value stocks!

Like billionaire investor Warren Buffett, I’m a massive fan of buying value stocks. Snapping up undervalued companies can turbocharge an investor’s wealth as they can have greater scope for long-term capital appreciation.

FTSE 100 company Aviva (LSE:AV.) is one UK share offering excellent all-round value today. It trades on a forward price-to-earnings (P/E) ratio of 8.8 times at current prices of 136p. This is comfortably below the index average of around 14 times.

The financial services giant also provides tremendous value for dividend investors. Its 7.4% dividend yield for 2023 flies above the FTSE 100 average of 3.5%.

3 reasons to buy Aviva shares

Some would say that Aviva shares are dirt-cheap for a reason. As consumer spending comes under pressure, demand for financial services like life insurance and investment products tends to fall.

The threat is particularly high for this operator, given its focus on the UK and Ireland (and Scandinavia). Here, the economic downturn is tipped to be deeper and more prolonged than in other major economies.

Yet despite these issues I’m still considering buying this value stock for my portfolio. I buy shares based on what return I expect to make over at least five years, usually longer. And I think the company might generate FTSE 100-beating investor profits over an extended timeframe.

Here are three reasons why I’d buy Aviva shares today.

#1: Demographic opportunities

Populations in the West are swiftly ageing. The ONS estimates that the number of Britons aged 65 or above, for example, will have soared 50% between 2016 and 2035.

This provides terrific opportunities for companies who make products for this demographic. Aviva, which supplies annuities, pensions and life insurance products, is one such business.

#2: An improving general insurance business

The steady improvement at Aviva’s general insurance business is also highly attractive to me as an investor. This uptick reflects the huge efforts the company has made to overhaul its underwriting processes in recent times.

Despite intense competition, policy volumes continue to grow and gross written premiums jumped 10% in the third quarter, latest financials showed. Both new business generation and customer retention remained solid in the period. More progress can be expected on this front too.

#3: Terrific cash generation

Aviva is a brilliant generator of cash. As of September 2022, its Solvency II capital ratio stood at 223%, more than double regulator requirements. This enables it to continue paying out those market-beating dividends.

The company could have more cash to play with in the years ahead too, if government plans to reform Solvency II rules come into effect.

This might give Aviva more firepower to pursue earnings growth via acquisitions and organic investment. It could also give the business more money to return to investors through further share buybacks as well as more juicy dividends.

I believe Aviva could be one of the best stocks to buy for future passive income, in fact. If I have spare cash to invest I’ll be seeking to add it to my own portfolio.