Why I'd buy Legal & General plc and Old Mutual plc ASAP!

I've thought the UK's insurance sector has been undervalued for some time now. Some of the top companies were found to be badly overstretched when the banking and financial crisis hit, but they've come a long way since then and don't have the same long-term problems as are still facing some banks.

I see that taint as still holding them back, and the shock of the UK's vote to leave the EU didn't help. But there are growing signs that the long-term health of the sector is starting to shine through.

Old Mutual(LSE: OML) shares have recovered reasonably well since 2016's Brexit shock, but at 222p today they're still below their pre-referendum level -- though a 4.7% rise on the day on Tuesday is surely a good sign.

It came after the company revealed the disposal of its Single Strategy asset management business for £600m. The sale, to TA Associates, will see the chief executive of the division, Richard Buxton, remaining at the helm.

Focused strategy

Chief executive of Old Mutual Wealth, Paul Feeney, said "As we outlined in the Showcase event in November, the Single Strategy business is less closely aligned to our goal of becoming the UK's leading wealth manager."And that appears to emphasise the still-emerging direction across the sector towards a focus on key businesses and away from diversity.

To my mind, that can only be a good thing, and I'm hoping the markets will open up to what I see as renewed optimism for the insurance business during the course of 2018 -- which I think is apparent from a look at the fundamentals.

With modest earnings growth forecast for this year and next, Old Mutual shares are on forward P/E multiples of under 10. On top of that there are thrice-covered dividend yields of around 3.5% on the cards.

It still faces some uncertainty due to a chunk of its focus being on emerging African markets. The economy of its native South Africa faces its own testing times and many investors will prefer to stick to the relative safety of solely UK insurance. But on its current valuation, Old Mutual looks like a buy to me.

Best in sector?

What's the best insurance company in the business? The one I've gone for myself is Aviva, but Legal & General(LSE: LGEN) is up there at the top and is one of the biggest dividend payers in the sector.

We're looking at a similar share price performance, with a sharp Brexit dip followed by a solid recovery, yet pretty much flat over two years at 270p. And Legal & General shares are also on low P/E ratios based on current forecasts -- a bit higher than Old Mutual's at between 10 and 11, but that's still below the long-term FTSE 100 average of around 14.

And the dividends? The City is predicting yields of 5.7% this year followed by 6% next, and they'd be around 1.7 times covered -- and if that doesn't make that low P/E valuation look like a bargain, I don't know what will.

Those forecasts look to be on the money too as the company's latest update in early December told us to expect "a record year in 2017" after sales topped £6.2bn to date with "significant" outperformance in retail markets.

I reckon Legal & General could be one of the best long-term dividend stocks on the market now.

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Alan Oscroft owns shares in Aviva. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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