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Why I’d buy Experian plc and Prudential plc for my pension

When buying stocks for my pension, I generally seek out well-established, high-quality companies that are dominant players in their fields. I look for companies that have strong track records of generating shareholder value and that offer a growth story going forward. With that in mind, here’s a look at two stocks that I believe have considerable pension stock appeal.

Experian

Credit check specialist Experian (LSE: EXPN) collects and analyses the credit histories of over a billion people and businesses around the world. It transforms this information into credit reports, which help organisations make faster, smarter credit decisions and lend responsibly. The group has been collecting data records for over 20 years now, and built itself up to be a key player within the industry, enjoying a strong competitive advantage over its rivals. The stock is up around 275% over the last 10 years.

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I last covered Experian back in August, after the shares had experienced a 10% correction. At the time, with the share price at 1,530p I said “I believe the 10% pull-back in Experian’s share price may have created an attractive entry point into the stock.” That call is looking good so far, as the stock touched 1,650p last week.

The £15bn market cap group released its half-year results this morning, and reported “a good start to the year.” Revenue increased 5% for the period, of which 4% was organic growth, and benchmark earnings per share rose 6% to 43 cents. The interim dividend was lifted by 4% to 13.5 cents per share. Chief Executive Brian Cassin commented: “We have started the year well and are on course to deliver stronger organic revenue growth as we move through the year. We also continue to expect further progress in benchmark earnings per share.”

City analysts believe that Experian’s growth will continue, with top line growth of 6.3% and 5.4% estimated for this year and next. The dividend is expected to increase too, with a predicted payout of 43 cents for this year meaning a yield of 2% at the current share price. However, after a bounce in the share price over the last two months, the stock looks a little pricey again, on a forward P/E of 22.3. With that in mind, I’d prefer to wait for another pull-back before buying.

Prudential

Another company that I hold in high regard and believe has excellent pension stock potential is Prudential (LSE: PRU). The £48bn market cap group is the largest insurer in the FTSE 100, serving 24m customers across the UK, the US and Asia.

What appeals to me most about Prudential is its emerging markets growth prospects. With millions of citizens across Asia set to enter the world’s middle class in coming years, demand for financial services products such as insurance and investments in this region is likely to remain buoyant, in my view. Generating 30% of its earnings from Asia, Prudential looks well-placed to capitalise on this theme.

Investors in Prudential have enjoyed solid gains over the last five years. The share price is up 110% and the dividend has been increased every year, at an average rate of 11.6%. However, with analysts expecting earnings per share of 137p this year, the stock doesn’t look expensive, on a forward P/E of a reasonable 13.5. That leads me to believe that there could be further gains ahead for long-term investors.

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Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has recommended Experian. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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