Nothing lasts forever, especially when it comes to investing, but Legal & General (LSE: LGEN) (NASDAQOTH: LGGNY.US) looks like the exception to the rule. Its share price seems to be on a permanent upwards path. It has risen over five years (300%), three years (110%), one year (52%), six months (20%) and one month (6%). Can nothing stop its inexorable ascent?
Impressively, it has done this without a major presence in Asia, a key factor behind rival insurer Prudential‘s similarly remorseless performance. Legal & General has compensated for this omission with strong performance in the US and the Gulf, and even Europe. That may offer some protection against the potential meltdown in China and Asia that analysts keep fretting about.
In a remarkable display of consistency, Legal & General has posted impressive growth across all its divisions, led by its investment arm LGIM, which enjoyed £15.4 billion of gross inflows in the third quarter, up 71% year-on-year. The group now has a whopping £443 billion under management.
Generally speaking, it’s a buy
Legal & General proved prescient in its decision to move into index-tracking retail investment funds, now increasingly in favour among investors (as they have been at the Fool for years). The UK’s recent financial advice overhaul, the Retail Distribution Review, was the ultimate vindication of this strategy. It demanded greater pricing transparency from fund managers, and Legal & General was already there. The future belongs to those who see it coming, they say. I’m also impressed by the group’s combined operating ratio (COR), which measures premiums earned against claims paid. It is just over 80%, while rival Aviva‘s COR recently hit 96.9%.
Now Legal & General is looking to build Britain’s future, by offering to fund the construction of five new towns in the UK. It is already a partner in the English Cities Fund, which is regenerating five inner city sites. With the UK facing a chronic shortage of residential property supply, it seems to have spotted the next growth opportunity.
Nothing lasts forever, however, and at some point, Legal & General’s impressive run will come to an end. Trading at 16.1 times earnings, and yielding 3.3%, just below the FTSE 100 average, it is beginning to look expensive. Forecast earnings per share growth of 9% in 2014 and 8% in 2015 should lift the dividend to a forecast 5.1%, however. I suspect Legal & General’s momentum still has some way to run.
