During the course of 2014, L&G (LSE: LGEN), Old Mutual (LSE: OML) and Prudential (LSE: PRU) have easily outperformed the FTSE 100. Indeed, they are up 8%, 6% and 8% respectively, which is a considerably better performance than the wider index, which is up just 1% over the same time period. However, despite seeing their share prices rise, L&G, Old Mutual and Prudential still offer great value for money and, as a result, could continue to outperform the FTSE 100 moving forward.
Low Valuations
On the face of it, L&G, Old Mutual and Prudential may not appear to be trading at bargain prices. For instance, L&G currently trades on a price to earnings (P/E) ratio of 14.4, while Old Mutual and Prudential have P/Es of 12 and 15 respectively. With the exception of Old Mutual, they are above the FTSE 100’s current P/E of 13.8, which may lead many investors to believe that they are in fact overvalued.
However, when the companies’ growth prospects are taken into account, it’s a very different story. Indeed, in 2015, L&G is expected to increase its bottom line by 10%, while Old Mutual and Prudential are forecast to grow their earnings by 17% and 12% respectively. All three insurers, then, are set to deliver above-average growth in profitability, which means that their price to earnings growth (PEG) ratios are very attractive. For example, L&G has a PEG of 1.4, while Old Mutual and Prudential have PEGs of just 0.6 and 1.1 respectively. Together, they show that all three stocks offer great value for money right now.
Income Potential
However, growth at a reasonable price is not the extent of L&G, Old Mutual and Prudential’s appeal. All three insurance stocks also offer promising dividend yields. For example, they currently yield 4.6%, 4.4% and 2.5% respectively. Certainly, Prudential’s yield of 2.5% does not at first appear impressive, but the company is set to increase dividends at a brisk pace over the medium term (for instance, by 9.6% next year) which should mean that they offer strong income prospects moving forward.
Looking Ahead
Although L&G, Old Mutual and Prudential have performed well during 2014, with their share prices easily beating the FTSE 100, they still have further upside potential. They all offer strong growth prospects at a very reasonable price, while dividends per share should mirror the strong growth profile of earnings over the medium term. As a result, they could continue to outperform the FTSE 100 and may prove to be sound buys at the present time.
