Legal & General (LSE: LGEN) (NASDAQOTH: LGGNY.US) has made plenty of investors wealthy lately. Here are five ways it could make you rich.
1) By continuing its rich vein of form
If you like momentum stocks, you will love Legal & General. This stock is up 260% over five years, 85% over three years and 45% over the last 12 months. It has recently been firing on all cylinders, with every division posting impressive growth, and that’s despite minimal exposure to China and Asia. This relative lack of emerging market exposure compared to, say, Prudential may now work in its favour. Especially as it favours stronger growth regions in the US and Gulf.
2) It has staying power
Legal & General is exposed to a wider market slowdown, particularly its rampantly successful investment arm, LGIM. Brokers are concerned, with both Credit Suisse and RBC Capital downgrading the stock to neutral in recent days, although their target prices of 250p are still comfortably above today’s price of 216p. This is a company that kept its dividend going throughout the recession, so it knows how to deal with downturns. Better still, the ageing global population should boost demand for its pension and investment products in the longer term, helping it to overcome short-term setbacks.
3) Because investors like it
LGIM attracted £15.4 billion worth of gross inflows in the third quarter, a rise of 71% year-on-year. It now has a mighty £443 billion under management, as investors fall in love with index-tracking funds. L&G’s insurance business is also booming, with the stand-out figure a 199% rise in annuity premiums in Q3. Operational cash generation was up 11% to £780 million in the first nine months of the year. This helps to fund a healthy dividend, currently yielding 3.5%. The future looks even brighter, with the yield forecast to hit 5.5% in December 2015. No guarantee of that, naturally, but it is pointing in the right direction.
4) By continuing to buy success
Legal & General has pursued a successful strategy of bolting on acquisitions in recent years, notably IFA fund platform Cofunds, which enjoyed £3.3 billion of net inflows in Q3. It has since bought annuity firm Lucida for £151 million. Both acquisitions fit nicely with its existing business, and should help boost assets under management as well. Further acquisitions could also drive growth.
5) By becoming cheaper
After a strong run, which has seen its share price rise a mighty 260% in five years, Legal & General may be due a breather. Valued at 15.5 times earnings, you aren’t buying it at a discount. Earnings per share are forecast to grow 8% this year and 8% in 2015, which suggests there is more fun to come. This might be a stock to stick on your watchlist, however, to see if the current market turmoil throws up a cut-price buying opportunity. The cheaper your entry price, the richer Legal & General will help you become.
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> Harvey owns shares in Prudential. He doesn't own any other company mentioned in this article.