Should I Buy Prudential Plc?

Harvey Jones wonders whether to stock up on Prudential plc (LON: PRU).

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’m shopping for shares right now, should I pop Prudential (LSE: PRU) (NYSE: PRU.US) into my basket?

Pru in a stew

Prudential is one of my stock-pick success stories. Its share price almost doubled after I bought it in 2010, although it has slipped lately. Is there a problem at the Pru, or is this a great opportunity to buy more of it?

Prudential caught my eye in the wake of chief executive Tidjane Thiam’s botched attempt to buy AIA Group. Shareholders were revolting, I was buying. Now the stock has finally hit a rough patch, with the share price down nearly 12% from its hitting a 52-week high of £12.03. That’s a bigger drop than the one suffered by rival insurer Legal & General Group, while Aviva didn’t fall at all. Is something up?

Double trouble?

Last time I reviewed Prudential, in October, I concluded it was great value at £8.16. I called that one right, because today it costs £10.61. That’s a rise of nearly 25%, even taking into account recent market madness. Prudential’s strength, its exposure to fast-growing Asian markets, suddenly became its weakness, thanks to the emerging markets sell-off of recent weeks. That didn’t worry Alistair Johnston, an independent non-executive director at Prudential, who took the opportunity to spend more than £50,000 on the company’s shares, doubling his stake. Should I double up as well?

You don’t get many opportunities to buy a company like Prudential at a discount, but this is one of them. It isn’t cheap, trading at 13.8 times earnings, against the FTSE 100 average of 12.4 times. But everything is relative, and Prudential is still 12% cheaper than it was. Forecast earnings per share (EPS) growth of 9% this calendar year and 11% in 2014 point to plenty of growth prospects for your money. So does the low PEG ratio of 0.6.

Prudence pays

Prudential’s yield remains a little disappointing at 2.8%, against 3.72% for the index as a whole, but 2.6 times cover gives scope for future progression. Emerging markets may be under the cosh, but Prudential is still growing, with Asian new business profits of $308m in the first quarter, a rise of 18%. That offset a worrying 10% fall in the US, and 2% in the UK, where it has been punished by the Retail Distribution Review, the financial advice regulatory overhaul, and the end to opting out from the state second pension (although its annuities arm and asset management limb M&G both posted strong growth).

Prudential isn’t immune to market shocks, and we should be grateful for that. Otherwise we wouldn’t get this kind of buying opportunity. It may fall further, but if it does, treat yourself and buy a bit more.

If it’s income you’re after, you might want to go shopping for Motley Fool’s favourite stock pick. Our analysts have singled out this FTSE 100 favourite because it offers a sky-high yield and great growth prospects. To find out what it is, download our free guide “Power Up Your Portfolio”. It won’t be available much longer, so click here now.

> Harvey owns shares in Prudential. He doesn’t own any other company mentioned in this article

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »