Now looks like a brilliant time to add a value stock or two to my portfolio. After a bumpy few months for the FTSE 100, there’s plenty to tempt me.
I’m particularly intrigued by Asia-focused insurer Prudential (LSE: PRU), although there’s nothing new in that. It’s been on my mind for years.
The Pru’s like an old relationship I can’t quite get over. We had a lot of fun together in the noughties, when my stake jumped around 70% in short order after I bought it. I moved on but lately I’ve found myself thinking about it a lot.
The Prudential share price is always on my mind
Prudential’s shares have endured a dismal decade. On 18 November, they traded at a healthy 1,285p. They’ve crashed by half since and today I could scoop them up for just 640p.
So what went wrong? Prudential’s big charm is that it was selling pensions and protection to millions of emerging middle-class Asian consumers who couldn’t rely on a welfare state so needed to make their own provision.
Investors couldn’t resist. Prudential gave them access to China, Hong Kong, Malaysia, Singapore and the rest while having to comply with UK corporate governance standards. It looked like the perfect match.
I’ve been tempted to renew my relationship with Prudential on a number of occasions, only to remember the phrase ‘never go back’. So far, that advice has served me well.
China’s stellar three-decade run of double-digit GDP growth couldn’t last forever. It’s been struggling since the financial crisis and repeated injections of stimulus have failed to turn back time.
The country’s caught in a political trap too, as Premier Xi Jinping’s authoritarianism throttles free market spirits. Now a US trade war looms with president-elect Donald Trump threatening 60% tariffs on Chinese exports.
Should I give this FTSE 100 stock another shot?
Prudential’s been afflicted by wider worries while going great guns itself. First-half results, published on 27 August, showed new business profit up another 8% to $1.47bn. The board hiked the dividend by 9%.
On 6 November, the board reported an 11% increase in new business profit to $2.35bn for the first nine months of the year. Q3 was particularly strong with annual premium equivalent sales up 10%.
CEO Anil Wadhwani said it remains on track for new business profit growth of between 9% and 13% in 2024. Even that didn’t revive the Prudential share price, which is down 31.34% over 12 months.
Prudential shares now trade at just 9.1 times earnings, well below the FTSE 100 average of 14.2 times. No wonder I’m thinking about giving it another shot.
Prudential’s never been a great income stock. Today’s trailing yield is 2.56% and dividends per share haven’t recovered pre-pandemic levels, as this chart shows.
Chart by TradingView
Yet the 18 analysts offering one-year share price forecasts have set a median and target of 1,120p. If correct, that’s up a stunning 73.58% from today.
Call me mad, foolish and reckless, but I can’t resist, despite that trade war threat. I’ll make my play when I have the cash, and this time I’ll commit for the long term. Never go back? Maybe just this once.
