The insurance company Prudential (LSE: PRU) is the biggest FTSE 100 loser today. Its share price is down by 8% following a weakening in Asian markets earlier today. This can either be a great opportunity for me to buy the stock or a good time to avoid it. That depends entirely on how its prospects look.
What works for Prudential
Its focus on Asia and Africa means that the insurance and asset management company is increasing its business in growth economies. Rapidly rising incomes now and in the future can continue to create demand for its products. Its latest results look good too. Its adjusted operating profit was up 22% for the half-year ending 30 June compared to the same time last year.
The downside to the FTSE 100 stock
However, Prudential’s share price is not among the best performing around. It has bounced back nicely from the stock market crash of March 2020, which I use as the go-to reference point to figure out how far FTSE 100 stocks have come since the last low point. It has almost doubled since. But in the past year, the increase has been only 14% until the last close. And the number would be even smaller after today’s sharp fall.
Additionally, the company does not pay much of a dividend either. It has a dividend yield of less than 1%. This means, that if I buy the stock it is only keeping growth in mind. And it has not shown much of that either.
The gloom could last
It can bounce back from the sharp fall seen today, because the decline has really very little to do with it. Bad news from property developer Evergrande in China has spread gloom around global stock markets. It is little wonder that Prudential, with its Asia focus, has suffered in particular. As some more rationality sets in, things could look better for it.
At the same time, there is no way of knowing right now if the Evergrande situation is just a one-off event or if the stock market softening will continue. Doomsday predictions are appearing thick and fast, comparing the current situation to 2008. Evergrande’s potential collapse has even been called to China’s ‘Lehman Brothers’ moment. We will know in the next few days how things turn out.
An alternative stock to buy on dip
In the meantime, I will avoid the Prudential stock. Instead, in terms of insurance stocks, I’ll consider the likes of Legal & General. It has seen a share price increase of over 50% in the past year, which is much more than Prudential. Further, it pays great dividends too. It has a dividend yield of 6.4%, which is almost three percentage points higher than the average FTSE 100 dividend yield. And it even has a lower price-to-earnings ratio of 8.3%, which is around half of Prudential’s ratio.
Last, but not the least, its share price is down today as well. It is down much less by 3.5%, but if there is a stock I’d like to buy on dip, it’s this.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. 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.