5 reasons why Legal & General’s share price is a brilliant bargain!

Our writer thinks the Legal & General share price could be too cheap to miss. Here are five reasons he expects the FTSE 100 share to rebound.

| 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.

Young brown woman delighted with what she sees on her screen

Image source: Getty Images

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.

The Legal & General (LSE:LGEN) share price has fallen 14% during the past year. It’s a descent that reflects investor fears that profits could sag as the global economy slows.

Spending on life insurance and other financial products can, after all, fall sharply when times get tough.

However, as a long-term investor this fall has grabbed my attention. This is because Legal & General shares seem to offer terrific all-round value at current prices around 257p.

The FTSE 100 company trades on a forward price-to-earnings (P/E) ratio of just 7.5 times. This is well below the 13.5 times average for London’s blue-chip index.

And Legal & General’s dividend yield for 2023 sits at an enormous 8%. It’s a reading that’s more than double the FTSE index average of 3.7%.

A tough environment

Of course some stocks trade cheaply for a reason. Low valuations are common among high-risk stocks and this UK share faces considerable headwinds of its own.

And as I say, demand for the sorts of products Legal & General sells can dip when consumers feel the pinch. The worry for the FTSE 100 company is that the world economy could perform worse than forecast in 2023 too. By extension, current earnings (and possibly dividend) forecasts for the firm could be in serious peril.

Today Saadia Zahidi, managing director of the World Economic Forum, reminded the audience at Davos that “the global economy is in a precarious position”. A poll of analysts conducted by the body also showed that the majority now expect a planet-wide recession this year.

Structural opportunities

However, this is a risk I would be willing to take. As a long-term investor I believe the chances of Legal & General shares delivering a robust return are very high.

First of all the business is strongly placed to capitalise on two structural trends. People are becoming more financially savvy and so sales of investing, retirement and insurance products are rising.

What’s more, the size of elderly populations in Legal & General’s key US and European markets are growing rapidly. So the company can expect sales of its pensions, annuities, equity release mortgages and other retirement products specifically to soar in the coming decades.

Balance sheet benefits

I also like Legal & General because of its excellent record of cash generation. As an income investor this is particularly encouraging as it gives dividend forecasts extra strength. The firm’s Solvency II capital ratio stood between 225% and 230% as of two months ago.

Its cash-rich balance sheet also gives the company enhanced scope for acquisitions and investments to drive long-term growth. Last year the company made its first investment in the US to create a real estate platform in the life science, research and technology industries. It has the financial ammunition to make more major investments in growth areas like housing and the green economy too.

On balance I believe Legal & General shares could be too cheap to miss right now.

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.

Royston Wild has no position in any of the shares mentioned. 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.

More on Investing Articles

Elevated view over city of London skyline
Investing Articles

I’m considering shares in this FTSE 250 investment trust while it’s trading at a discount

With this FTSE 250 investment trust trading at a discount to NAV, this Fool thinks it's a bargain. Not to…

Read more »

Investing Articles

If I’d invested £1,000 in Tesla stock a decade ago, here’s what I’d have now!

While many of us debate whether Tesla stock is worth the price today, it's undeniable that the EV share has…

Read more »

Investing Articles

Here’s what Michael Burry did as the BP share price dipped!

The BP share price has fallen from its peaks once again, and infamous investor Michael Burry may have spotted an…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

What on earth’s going on with the Barclays share price?

The Barclays share price has skyrocketed in recent months, becoming one of the best-performing stocks on the FTSE 100 since…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Analysts say this amazing FTSE 100 stock is a takeover target!

This FTSE 100 stock's one of the worst-performing companies on the index in 2024. So why might other companies want…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

5.4% yield! 2 UK dividend shares to consider for a £1,080 passive income

I think these UK shares could provide a large and sustainable passive income. And they could be great buys today…

Read more »

Investing Articles

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »