Should I Buy Prudential Plc?

I’m shopping for shares right now, should I pop Prudential (LSE: PRU) (NYSE: PRU.US) into my basket?

Pru in a stew

Prudential is one of my stock-pick success stories. Its share price almost doubled after I bought it in 2010, although it has slipped lately. Is there a problem at the Pru, or is this a great opportunity to buy more of it?

Prudential caught my eye in the wake of chief executive Tidjane Thiam’s botched attempt to buy AIA Group. Shareholders were revolting, I was buying. Now the stock has finally hit a rough patch, with the share price down nearly 12% from its hitting a 52-week high of £12.03. That’s a bigger drop than the one suffered by rival insurer Legal & General Group, while Aviva didn’t fall at all. Is something up?

Double trouble?

Last time I reviewed Prudential, in October, I concluded it was great value at £8.16. I called that one right, because today it costs £10.61. That’s a rise of nearly 25%, even taking into account recent market madness. Prudential’s strength, its exposure to fast-growing Asian markets, suddenly became its weakness, thanks to the emerging markets sell-off of recent weeks. That didn’t worry Alistair Johnston, an independent non-executive director at Prudential, who took the opportunity to spend more than £50,000 on the company’s shares, doubling his stake. Should I double up as well?

You don’t get many opportunities to buy a company like Prudential at a discount, but this is one of them. It isn’t cheap, trading at 13.8 times earnings, against the FTSE 100 average of 12.4 times. But everything is relative, and Prudential is still 12% cheaper than it was. Forecast earnings per share (EPS) growth of 9% this calendar year and 11% in 2014 point to plenty of growth prospects for your money. So does the low PEG ratio of 0.6.

Prudence pays

Prudential’s yield remains a little disappointing at 2.8%, against 3.72% for the index as a whole, but 2.6 times cover gives scope for future progression. Emerging markets may be under the cosh, but Prudential is still growing, with Asian new business profits of $308m in the first quarter, a rise of 18%. That offset a worrying 10% fall in the US, and 2% in the UK, where it has been punished by the Retail Distribution Review, the financial advice regulatory overhaul, and the end to opting out from the state second pension (although its annuities arm and asset management limb M&G both posted strong growth).

Prudential isn’t immune to market shocks, and we should be grateful for that. Otherwise we wouldn’t get this kind of buying opportunity. It may fall further, but if it does, treat yourself and buy a bit more.

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> Harvey owns shares in Prudential. He doesn’t own any other company mentioned in this article