This FTSE 100 stock tanked in March and I just bought it while it’s cheap

Edward Sheldon has been buying a FTSE 100 stock that was hammered in March. He expects it to rebound in the not-too-distant future.

| 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.

Hand of person putting wood cube block with word VALUE on wooden table

Image source: Getty Images

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.

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.

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.

Edward Sheldon has positions in Prudential Plc. The Motley Fool UK has recommended Prudential Plc. 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

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

2 FTSE 100 value stocks I’d buy for my Stocks and Shares ISA in March!

Now could be a great time for fans of FTSE 100 value stocks to go investing. Here are a couple…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Looking for value stocks? Here’s 1 I’d buy and 1 I’d avoid!

This Fool delves deeper into two value stocks she’s had her eye on and explains why she’s bullish on one,…

Read more »

Young black woman using a mobile phone in a transport facility
Investing Articles

With the Airtel Africa share price in pennies, is it a bargain?

With the Airtel Africa share price having slumped by a quarter in just one month, this shareholder considers some of…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

Are these 2 defensive FTSE 100 stocks shrewd buys after recent updates?

This Fool takes a closer look at these FTSE 100 stocks. She admires their defensive traits -- but does that…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

The FTSE 100 closes up after full-year results from leading UK firms – are they buys?

Earnings season brings about a lot of ups and downs for the FTSE 100. Yesterday had some particularly good releases,…

Read more »

artificial intelligence investing algorithms
Investing Articles

Should I buy NVIDIA stock as a British investor?

NVIDIA stock is up two-thirds this year alone. Our writer considers some pros and cons, specifically given that he is…

Read more »

Investing Articles

With £2,000 in excess savings, I’d buy 41 shares in this Warren Buffett dividend stock

Stephen Wright thinks one of the best dividend shares to buy right now might be a Warren Buffett stock that’s…

Read more »

Investing Articles

How many Aviva shares do I need to collect a £100 monthly income?

Aviva shares are well suited for passive income purposes. Our writer works out how many would be needed for a…

Read more »