March was a rough month for a lot of FTSE 100 stocks. Amid the meltdown in the US banking sector, many Footsie companies saw their share prices tank.
Now, while the US banking crisis has certainly created some economic uncertainty, I see some of the recent share price weakness across the FTSE 100 as a little excessive. With that in mind, here’s a look at a stock I snapped up more of after a significant share price fall.
Share price drop
One of the biggest casualties from the US banking crisis here in the UK has been financial services company Prudential (LSE: PRU).
Back in late January, shares in the insurer – which is focused on Asia and Africa these days – were trading near 1,400p.
However, last month, they fell below 1,000p at one stage as the banking crisis sent investors into panic mode.
A buying opportunity?
Now, this share price fall seems unjustified, to my mind.
Sure, there’s some uncertainty here over fixed income losses now that interest rates are much higher than they were in the recent past (bond prices fall as interest rates rise). Profits may take a hit in the near term.
However, I think fears here are overblown. And I’m not the only one with this view.
In a recent research note, analysts at JP Morgan argued that insurers have more solid balance sheets than market fears suggest and do not face the same liquidity issues as the banking sector does.
They pointed out that insurers are heavily incentivised not to take asset-liability duration risks thanks to solvency regulations, which are designed to ensure the adequate protection of policyholders and beneficiaries.
We believe the risks from the types of mark-to-market losses, capital issues and liquidity concerns at SVB do not have any significant read across to the European insurance sector.
JP Morgan analysts
It’s worth noting that since their research note, JP Morgan’s analysts have actually raised their price target for Prudential from 1,750p to 1,850p. That price target is about 65% higher than the current price.
Insiders have been buying shares
Company directors seem to share my view too.
Since mid-March, three Prudential insiders have purchased shares.
The largest purchase was from board member Chua Sock Koong (7,500 shares at a price of HK$100.61 per share), who has considerable financial experience.
I find these insider purchases very encouraging.
I’ve bought it for a rebound
Given the research from JP Morgan, the insider buying, and the fact that the stock is now trading on a price-to-earnings (P/E) ratio of about 12, I took the plunge and bought some more Prudential shares for my portfolio.
I remain convinced that the company has long-term growth potential, given its exposure to Asia (especially now that China has reopened).
And I think there’s a good chance the shares will recover over time.
