Legal & General Group Plc And Prudential Plc Can Continue To Smash The Market

I’ve been an admirer of Legal & General (LSE: LGEN) (NASDAQOTH: LGGNY.US) and a holder of Prudential (LSE: PRU) (NYSE: PRU.US) for some years now.

Happily, my faith hasn’t been misplaced. These are two of the best performing stocks on the FTSE 100, growing 242% and 167% respectively over the past five years. Plenty to admire there.

The big question when you see figures like these is whether the companies can maintain their momentum, or whether they have raced ahead of themselves.

I reckon L&G and the Pru still have more juice in the tank.

Bulk Booster

Both stocks posted bullish half-year results last month. L&G posted an 11% rise in group operating profit to £636m and hiked its dividend 21% to 2.9p.

That’s particularly impressivlandge given the 49% drop in individual annuity sales, following Chancellor George Osborne’s decision to scrap the obligation to buy one. This would have been a major blow to many companies, but did little damage to a business as large and diversified as L&G.

Sales of bulk annuity contracts leapt 368% to £3.1 billion, helped by L&G securing the largest ever UK bulk annuity contract, the ICI pension fund.

L&G also boasts assets under management totalling £465bn, up 7%.

Need Some Protection?

L&G is helped by the fact that its two major markets are the UK and US, both of which have been growing relatively strongly lately. 

Demographic trends are also on its side. People need to save more into pensions and other investments, as life expectancy rises and over-stretched welfare states hit a wall. 

The downside is that L&G isn’t cheap, trading at 15.3 times earnings, against around 13.8 times for the FTSE 100. 

As its share price has grown, the yield has slipped to 2.9%, although that recent 21% hike suggests there is plenty of scope for progression.

True Pru

prudentialPrudential has also cashed in on the US recovery, while recent struggles in emerging markets have done little to dent its rapid expansion plans in Asia. Its recent half-year results showed a mighty 17% rise in operating profits to £1.52 billion. New business profits exceeded £1 billion.

Again, the demographic trends are favourable, also in Asia, where the middle class is emerging, and ageing.

Asian adventure

Prudential hiked its dividend by a generous 15% to 11.19p a share. Despite that, the yield is now relatively lowly 2.42%. That’s the price you pay for success, along with a valuation of 17 times earnings.

Much of that valuation will be based on Prudential’s ambitious Asian growth prospects, but giving its success in hitting all its targets in recent years, this is a price worth paying.

It’s too much to ask for these two insurers to repeat the rampant success of the last five years, but there are good reasons why their outperformance should continue.

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Harvey Jones owns shares in Prudential. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.