I think this FTSE 100 stock could be a once-in-a-decade buy

This FTSE 100 share has plunged and recently hit a 10-year low. Here are five reasons why I reckon it could recover strongly.

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With hindsight, we know there was an incredible opportunity to buy Rolls-Royce when the FTSE 100 stock was trading for pennies in 2020. It was down but certainly not out.

So, it stands to reason that there might be other bargains hiding in plain sight today. I think I’ve spotted one. Here are five reasons why I reckon this Footsie stock could rebound strongly.

Interest rates

I’m talking about life insurance company Prudential (LSE: PRU). Its shares are currently trading near multi-year lows after plunging 50% in five years. In fact, they recently hit a 10-year low!

One reason for this is that insurance stocks have generally been out of favour. For example, Legal & General and Phoenix Group are down 15% and 27%, respectively in the last five years.

Higher interest rates can affect the profitability of insurance companies in various ways, creating uncertainty. Yet rates are due to start coming down this year, which should improve investor sentiment.

Improving China outlook

Higher rates don’t explain most of the weakness in the Prudential share price, though. The Asia-focused group is headquartered in Hong Kong and has exposure to the Chinese insurance market.

As we know, China’s economy has been sluggish for some time and is suffering from a long-running property crisis. Any further economic weakness presents a risk to Prudential’s growth and profits.

However, the outlook for the world’s second-largest economy has been improving. In Q1, GDP grew by 5.3%, faster than expected. This puts it on course to achieve its official annual target of 5%, which is good news for the firm.

Share buybacks

Analysts expect Prudential to post earnings per share (EPS) of 97 cents in 2024, representing 55% year-on-year growth. This places the forward-looking price-to-earnings ratio at just 9.7.

The stock’s cheapness hasn’t gone unnoticed. On 23 June, the insurer launched a massive $2bn share buyback programme. This is expected to be completed no later than mid-2026.

Buybacks tend to boost the EPS metric as there are fewer shares for earnings to be split between. They can also support a rising share price, as well as being a show of financial strength.

In fact, the stock has already risen 4.5% since this buyback announcement.

Dividend growth potential

Also, the company pays a dividend that is covered more than four times over by anticipated earnings. This suggests there is ample room to increase the amount of cash it allocates towards dividends.

And while the yield is only 2.2%, the firm said it expects to growth this year’s annual dividend by 7%-9%.

Of course, payouts will rely on the firm hitting its financial targets, which isn’t guaranteed. These include growing new business profit by a compound annual growth rate of 15%-20% between 2022 and 2027.

Not just China

Finally, Prudential’s future growth doesn’t just rely on Hong Kong and mainland China. It’s growing nicely in Thailand and India while increasing its presence in Africa.

These are markets that have low insurance penetration rates compared with the West, indicating high-growth potential. And there’s a combined population of 4bn!

For all of the reasons set out above, I think Prudential shares could rebound very strongly from 738p in the years ahead. This is why I’m considering adding some to my portfolio in July.

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.

Ben McPoland has positions in Legal & General Group Plc and Rolls-Royce Plc. The Motley Fool UK has recommended Prudential Plc and Rolls-Royce 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.

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