In a recent article I took a look at DS Smith, a brilliant income share that has sunk in 2018 but one which I reckon could spring back into life next year.
Insurance colossus Prudential (LSE: PRU) is another battered FTSE 100 stock that I think could gallop higher. It’s been whacked by suggestions that emerging economies could be about to slow should, as expected, further Federal Rate reserve hikes happen, strengthening the US dollar and putting pressure on far-flung territories. Consequently the company’s share price has dropped 20% in the year to date.
It’s all looking great
This represents a gross overreaction by the market, in my opinion. It leaves Prudential dealing on a forward P/E ratio of just 10.3 times, a figure which is shockingly low given how successful the company has proved to be in capturing the pent-up demand for protection and savings products in these bright new economies.
This was evident in November’s trading update in which Prudential advised that new business profit for its life insurance products boomed 17% in the nine months to September, underpinned by a 15% profits improvement in Asia to £1.76bn.
There’s no doubt to me that the business, which has more than doubled new business profit in Asia since 2014, can continue reporting exceptional bottom-line growth as its expansion plans across the continent and evolving product ranges service the needs of an increasingly wealthy customer base.
City analysts are expecting earnings growth to accelerate in the medium term in reflection of this, the 2% profits rise fingered for 2018 predicted to improve to 8% in 2019. And dividends are expected to keep growing as well — last year’s 47p per share reward is tipped to rise to 50.4p in the current period and to 55.3p next year, and this results in fat yields of 3.3% and 3.6%.
Another of my Footsie favourites
The probability of Prudential’s super-progressive dividend policy remaining in business for many years to come makes it a top share to buy now and hold for many years into the future. And while you’re here, I’d like to bring your attention to Smith & Nephew (LSE: SN), another brilliant blue-chip with a bright long-term outlook.
Its share price had suffered the same fate as Prudential up until early November’s blistering trading update, reflecting the joint-and-limb-maker’s severe sales troubles in established markets. But the buzz that has continued following that third-quarter trading statement has propelled it to a fresh record high in Friday trading, above £14 per share.
And I’m confident that with, news flow improving more recently, it can continue its recent share price surge into 2019. Underlying sales growth in the US picked up from the fractional rise in the first half to 4% in the July to September quarter, this month’s trading release showed, while corresponding sales to developing markets powered to 10% from 8% in the first six months of 2018.
Smith & Nephew doesn’t come cheap right now thanks to that recent share price strength and it sports a forward P/E ratio of 19.7 times. A tad toppy on paper, sure, but in my opinion a fair rating given the predicted growth rates for some of its products, especially those in the field of sports medicine and wound care, and particularly so in Asia. It’s a hot blue-chip, like Prudential, to load up on today, in my opinion.
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Royston Wild owns shares of DS Smith. The Motley Fool UK has recommended DS Smith and Prudential. 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.