It’s been a good week for Prudential (LSE: PRU), with shares in the FTSE 100 income stock jumping an impressive 11.82%.

The Asia- and Africa-focused insurance and savings giant was lifted by news that China will now be easing its Covid lockdown policy. It’s rare positive news for the Pru on this front, as pandemic movement restrictions have squeezed its revenues, profits and shares. Its stock is down 37.79% measured over a year and 43.26% over five.

Prudential used to be a favourite portfolio holding of mine and I did well out of it. But I’m glad I banked my profit six or seven years ago. It’s fallen steadily since I sold, and the yield is at the low end too. Today, investors get just 1.7% a year, which is underwhelming, given that many top FTSE 100 income stocks now yield 6%, 7%, 8%, or more.

This income stock has underperformed

In 2020, Prudential slashed its dividend in half, when selling its US-based operation Jackson National Life. It assured investors it would reinvest the money to generate strong growth and bumper profits from Asia and Africa, yet that hasn’t borne much fruit yet.

The 2019 decision to split from asset management arm M&G was also justified by the same logic. Again, the promised benefits have been slow to materialise.

Prudential’s emerging market strategy was always going to be one for the long-haul, and the pandemic has extended the journey time. The Omicron variant forced restrictions during the first half of 2022. Not just on the Chinese mainland but also Hong Kong, India, Indonesia, Thailand, Vietnam, Malaysia and Singapore.

Given this headwind, Prudential arguably did well to increase sales by 9% to $2.11bn. Adjusted operating profit increased 8% to $1.66bn, boosted by a 32% reduction in central costs, Prudential said. CEO Mark FitzPatrick hailed the group’s “resilient operational performance” and “multi-channel, digitally enhanced distribution platform.”

There were signs that sales were picking up in Q2 as restrictions eased. With China now opening up, this progress should accelerate. So will loyal investors finally enjoy their long-promised rewards?

Its dividend is covered a thumping 5.9 times by earnings. That suggests there is plenty of scope for growth and management is stepping up efforts. In August, it announced the interim dividend would increase by 7% to 5.74 US cents a share. 

Weak pound should boost earnings

Figures published earlier this year by Brewin Dolphin showed the dividend should grow by 13.24% this year, then by 8.26% in 2023 as the “re-focussed and leaner business becomes more cash generative”. That offers some hope of brighter times.

Prudential also has “financial resilience, capital strength and capability,” FitzPatrick says, and should build shareholder value over the long-term. Right now, it looks reasonable value, trading at just 10.1 times earnings.

The company may also benefit from the weaker pound, as this will increase the value of its earnings once converted back into sterling. So would I buy it today?

Prudential is heading in the right direction and may start to justify investors’ faith now that recent reorganisations are behind it. Yet I’m not a buyer.

There are cheaper FTSE 100 stocks out there, with higher yields. Income stocks Persimmon, Aviva, Rio Tinto and Unilever are some of those to tempt me lately. I’d buy them ahead of Prudential.

The post This cheap FTSE income stock is up 12% in a week – here’s what I’d do now appeared first on The Motley Fool UK.

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Harvey Jones holds shares in Persimmon. The Motley Fool UK has recommended 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.

House prices are booming and so is the housebuilding sector. I think one of the best shares to buy in this sector is also the biggest, Barratt Developments (LSE: BDEV). Earlier this month it increased full-year expectations, as it completed more homes and sold them for higher prices. Today’s high demand looks set to continue, even after the stamp duty holiday expires.

My worry is that rising building costs will eat into profits as commodity prices spiral, while supply chain issues could slow completions. Unemployment could rise once furlough ends, making buyers feel poorer.

However, with the new-build market underpinned by the government-backed Help to Buy scheme, Barratt’s valuation of just 10.7 times forecast earnings and forward yield of 3.7% (covered 2.4 times) look tempting to me.

This also looks like one of the best shares to buy

Prudential (LSE: PRU) also merits a place on my list of best FTSE 100 shares to buy, in part due to its low valuation of just 12.6 times forward earnings. The insurer is now focusing on fast-growing Asian and African markets, offering a vast untapped market of the middle-classes look to build and protect their wealth. The opportunity is huge.

Share price growth has been strong lately with the stock up 43% in a year. There’s a danger it may idle after posting such quick-fire growth, despite that low valuation. Another potential concern is that Prudential’s negligible dividend leaves investors relying on growth. A planned $3bn equity raise aimed at reducing debt and funding opportunities could dilute the stock.

Despite this, sales are accelerating both in Asia and Africa as they emerge from the pandemic, so there’s a vast opportunity for investors willing to be patient.

FTSE 100 growth stock

I also rate quality assurance provider Intertek Group (LSE: ITRK) as one of the best shares to buy on today’s FTSE 100. Yesterday, it reported “solid” revenue growth of 2.7% year-to-date, speeding up in March and April when revenues jumped 9.3%. Sales are still below 2019 levels, but the group remains on track to hit this year’s targets. 

My concern is that the stock is expensive, trading at 30.9 times earnings. Recent growth has been good, but not that good. Especially since the yield is just 1.8%.

However, I think it’s a strong long-term opportunity as Intertek seeks new outsourcing opportunities in the $250bn global quality assurance market. It should also benefit from the global push to net zero carbon as companies battle to prove supply chains are clean.

I don’t expect instant success, but I never do when hunting down the best shares to buy. Instead, I prefer to focus on the long-term story and that remains promising. With all three stocks, I might wait to buy them on the dips.

The post Best shares to buy: I’d build my portfolio on these 3 FTSE 100 stocks appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Intertek 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.

FTSE 100 stocks look cheap because the UK market has underperformed against international rivals since the 2016 Brexit referendum. After stealing a march on vaccinations, we have a chance to play catch up. Here are two shares with a global reach that could benefit.

Defence manufacturer BAE Systems (LSE: BA) has been hit hard by the pandemic, its stock trading 21% lower than a year ago. Although it quickly restored its dividend after cutting it during the first lockdown, investors remain wary. Its civil aerospace division, which makes parts for Boeing, has been hammered by global flying bans. However, robust defence sales have compensated.

This share yields more than 5%

Yesterday, the BAE Systems share price enjoyed a lift after management posted a 4% rise in full-year profits to £20.9bn. It expects sales to grow 5-7% in the year ahead, with underlying profits on course to rise over 10%.

The FTSE 100 stock is also paying dividends, and currently offers a juicy forecast yield of 5.3%, covered 1.9 times by earnings. The share price looks relatively cheap as well, trading at just 9.7 times forward earnings.

Commercial aviation is still suffering though, with supply chain interruptions a further headwind. If lockdowns drag on, that could delay its recovery. Another worry is that net debt has increased, as management has paid down pension obligations and pursued acquisitions. However, I’m hoping acquisitions will more than pay for themselves by boosting long-term profits.

I think this stock is a long-term buy-and-hold opportunity, given its cheap valuation and healthy growth prospects.

Asia-focused insurer Prudential (LSE: PRU) is another FTSE 100 stock that looks cheap today, trading at 11.8 times forecast earnings. Unlike BAE Systems, its share price has proved fairly resilient during the pandemic. After crashing along with everything else last March, it’s rallied nicely, jumping 21% over six months. Over five years, it’s up 36%.

Both FTSE 100 stocks look cheap to me

Prudential’s exposure to Asia is serving it well, as the continent has weathered the pandemic better than Europe and the US. The group is now doubling down on this, by floating US annuities division Jackson for an estimated $5bn, and raising up to $3bn in new equity to attract Asian investors.

The equity move has dismayed some investors but, again, I’m hoping that investing in growth will reap rewards. Asia has a large and fast-growing middle-class that will increasingly want the financial products Prudential specialises in, such as pensions and protection. I do not expect a rapid return, though. I will be patient, and wait for its Asian and Africa investments to pay off.

My major concern is that it could get caught up in growing political tensions between China and the West, as has happened to HSBC Holdings. Retaining its London listing makes this more likely. Another big downside is that it has slashed its dividend to fund expansion plans. That means it now yields just 0.9%.

Prudential isn’t much of an income stock nowadays, sadly, but I’m going for growth with this one and I still think this FTSE 100 stock is a good way for me to play emerging markets.

The post £2k to invest? I’d buy these 2 cheap FTSE 100 stocks ahead of the recovery appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

The FirstGroup (LSE: FGP) share price is down more than 13% this morning after it reported a statutory operating loss of £152.7m in the year to 31 March. That starkly reverses last year’s £9.8m profit. Revenues rose 8.8% to £7.75bn. But pre-tax losses nonetheless climbed sharply, from £97.9m last year to a hefty £299.6m.

The FTSE 250-listed bus and rail operator, which operates in the UK and US, blamed losses on a North American self-insurance provision, Greyhound impairment charges, restructuring and reorganisation costs and, of course, Covid-19.

Bargain FTSE stocks I’d avoid

Although the pandemic only affected the end of the year, it still cut average passenger volumes by around 90% by the end of March, with international lockdowns in place and the North American schools it serves closed.

Chief executive Matthew Gregory said guidance for this financial year is simply “not possible” as travel volumes have “reduced very substantially.” As the US struggles with the first wave of coronavirus infections, that looks set to continue.

Gregory says FirstGroup’s long-term fundamentals remain “sound.” It has fiscal and contractual support for running essential services during the pandemic, but admits to “material uncertainty as to the continuation of these measures.” It also has committed undrawn liquidity of around £850m at the end of June.

The FirstGroup share price looks like a FTSE bargain, trading almost 70% below its pre-pandemic peak. But the road to recovery looks too long, bumpy and fraught with potholes for me. Plans to sell its North American operations could stall, given current uncertainties. Investors are selling. I’m not buying.

I wouldn’t buy this share either

Now here’s a bargain FTSE 100 stock I’d love to buy, but won’t. Coincidentally, insurer Prudential (LSE: PRU) is also looking to reduce its US exposure, to concentrate its firepower on Asia instead. It’s selling a stake of it US arm Jackson to Athene Holding for $500m. Athene will also reinsure a $27.6bn portfolio of annuity liabilities.

Prudential has already backed away of the UK, selling UK fund management arm M&G and £12bn of its UK annuity portfolio. Trading at less than nine times earnings, this stock looks like a classic FTSE 100 bargain. But here’s why I wouldn’t buy it.

The Prudential share price remains vulnerable to political uncertainty in Asia, as China cracks down on Hong Kong democracy. That’s a problem, given that revenues from the territory make up a third of sales. Locals have been buying less insurance while China-based customers have stayed away, due to fear of hostility towards mainlanders.

On Monday, I warned against investing in Asia-focused banks HSBC Holdings and Standard Chartered. This morning, shares in HSBC plunged on reports that the White House may undermine the peg between the Hong Kong and US dollars.

This added layer of uncertainty means I wouldn’t buy Prudential either. Shame. Otherwise it looks like a top FTSE 100 bargain.

The post Beware these bargain FTSE stocks! Here’s why I’m avoiding these 2 dirt-cheap shares today appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

Savers reeling from the Bank of England’s decision to slash interest rates today should take particular close attention. Lower rates are a massive blow for anybody looking to take out a Cash ISA with this year’s £20,000 allowance. But Prudential’s dividend pays 18 times the new, lower base rate of just 0.25%.

While Prudential has US exposure through its Jackson arm, most investors have been buying it as a play on emerging markets and China. The group has been rapidly expanding its operations to take advantage of the emerging middle-classes. These people need to buy their own pension, health and insurance products, rather than relying on the state.

Profits up 20%

This morning, Prudential posted a forecast-beating 20% rise in group adjusted operating profit from continuing operations. It stood at a whopping $5.3bn.

Group CEO Mike Wells hailed “another positive performance during 2019, despite significant macroeconomic and geopolitical volatility.” He says this leaves the £39bn group positioned for future growth.

In Asia, its fast-growing franchise delivered double-digit growth in new business profit across eight markets.

But coronavirus has slowed economic activity and dampened sales momentum in Hong Kong and China “with a consequential effect on new business profit.” 

However, the group’s broad geographic spread and the strength of its recurring premium business model “lends considerable resilience” to its earnings. Hence today’s upbeat market response.

Action on Jackson

The big news today was a plan to launch a minority IPO for the US annuity business Jackson. This is to attract third-party funding. And it will give it the capital strength to become a separately-listed business. This follows pressure from activist investor Third Point. It comes after the £5.7bn separation from fund management arm M&G in October.

There’s no timescale for the IPO as yet, valued at between $6bn and $10bn, which seems wise given current market concerns. Prudential will retain its London HQ, despite not doing any business in the UK, saying it offers a huge pool of finance professionals.

My aim is Pru

Prudential stock rose more than 3% shortly after the results were announced, but fell by a similar amount in the afternoon as the wider FTSE 100 recovery rally ran out of steam.

Savers looking for a higher return will be impressed by the Pru’s progressive dividend policy. The board announced a second interim ordinary dividend of 25.97 cents per share today.

The recent market crash has helped push the yield up to 4.5% a year, handsomely covered 3.2 times by earnings. Prudential stock now trades at a bargain valuation of just 8.6 times earnings.

These are unnerving times, as we wait to see how far the coronavirus spreads, but now could be the perfect time to buy Prudential. Especially if China is over the worst.

The post Forget the Cash ISA! This FTSE 100 dividend stock I like now yields 18 times base rate appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

Prudential

Insurance giant Prudential (LSE: PRU) is one of my most successful stock trades, doubling my money in just a few years. I took my profits four or five years ago, and got my timing right, because its stock has idled since then.

This leaves the Prudential share price trading at a bargain valuation of just 8.8 times earnings, less than half the average valuation across the FTSE 100, which is currently 18 times earnings.

Now is a tempting entry point but why has the Prudential dipped like that? A key (and innocent) reason is that it recently peeled off its fund management arm, M&G, into a new business, a split that led to an instant 10% drop in the Pru’s share price.

Slimmed down Prudential has massive growth potential, as it looks to build on its strong position in emerging markets and Asia, where the fast-growing middle class population does not have state benefits to fall back on, and needs to buy its own pension and protection products. This gives the £36bn group a huge market to go for, and it recently struck a new deal to sell life insurance to customers of Vietnam’s Southeast Asia Commercial Joint Stock Bank.

Prudential currently yields income of 3.6% a year but dividends should continue to increase steadily, with earnings expected to rise 7% this year, then another 7% in 2021. Asia looks set to grow at a faster pace than the West. The Pru could be a good way to play that opportunity.

Phoenix Group Holdings

Phoenix Group Holdings (LSE: PHNX) is one of the unsung dividend champions of the FTSE 100. The £5.55bn group is a closed life assurance fund consolidator, which means it buys up life and pension funds that other insurers have closed to new business, and continues to run them for policyholders.

This means it does not have to spend any money marketing its services to new customers, but can focus its efforts on quietly managing existing funds, while using its size to cut costs and boost efficiencies.

This is a steady, conservative business whose main attraction is the regular stream of dividend income you should receive, which you can reinvest back into the stock to build your pension wealth, then take as income after you retire. Phoenix offers an attractive current yield of 6.2%, comfortably above the FTSE 100 average of 4.3%. 

Investors have enjoyed share price growth as well, with the stock up 20% over the last year. Despite this, the Phoenix share price isn’t expensive, trading at 11.4 times earnings.

Combined or individually, stocks like these two could set you on the way to building the pension you need in retirement.

The post No savings at 50? I’d buy these FTSE 100 dividend stocks to retire on a passive income appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

The demerger completed two weeks ago, but I currently see merit in continuing to hold the M&G shares, at least for the foreseeable future. Indeed, I’d go so far as to rate the stock a ‘buy’ right now, along with its former parent Prudential. Here’s why.

Sum of the parts

When I was writing back in March, Prudential’s shares were trading at around 1,600p. I felt a sum-of-the-parts valuation of about 1,900p was reasonable, and I was looking for the demerger to unlock this value.

Investors who bought Prudential at 1,600p now own PRU shares, trading at 1,358p, and a matching number of free MNG shares, trading at 217p. This totals 1,575p. In other words, the combined value of the split businesses is around the same as when they were together, and the 1,900p I was looking for hasn’t been realised — yet. I still think it will be in due course.

M&G profile

As an asset manager and closed-book insurer in mature UK and European markets, M&G may not have the exciting growth potential of Asia-focused Prudential, but its cash flow profile, and ability to provide shareholders with generous dividends, is attractive for income seekers.

We have a situation where growth-biased investors who bought PRU now also hold MNG shares. Analysts expect a pretty much full recycling of MNG’s shareholder base over time, with income-seeking investors replacing the growth-biased holders.

Compelling value

I think the shareholder-base dynamic is depressing the share price at the moment. While M&G might have an unexciting growth outlook, I think the stock offers compelling value at the current level on an 18-month view.

My sums say investors can look forward to an 11.9p a share final dividend this year, along with a 3.85p special dividend. The 15.75p total gives a yield of 7.3%. I anticipate an 18.5p dividend in 2020 for a yield of 8.5%. These yields add up to an 18-month dividend return of near 16%.

I’m also anticipating a re-rating of the shares, as the churn of the shareholder base plays out. I can see M&G coming to trade with a peer-like 7% 2020 dividend yield, rather than the current 8.5%. This would see the share price rise to around 265p — representing 22% upside from today’s level. As such, I’ve pencilled in an 18-month total return (share price appreciation plus dividends) of 38% from M&G.

Long-term pick

Meanwhile, Prudential, my long-term pick of the two, also currently looks cheap. To realise my 1,900p total valuation of MNG and PRU, the latter’s share price would have to rise from its current 1,358p to 1,635p (20% upside). I’m also anticipating about 65p of dividends (4.8% yield) over the next 18 months, so a total return for the period of near 25%.

The 20% upside for PRU’s share price looks eminently reasonable to me. It would be trading at 11.2 times forecast 2020 earnings — still below its average historical multiple, and this for a company with a higher earnings growth outlook since the unyoking of M&G.

The post Why I wouldn’t sell the MNG share price to buy more Prudential yet! appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

The following two FTSE 100 stocks allow you to invest in the region, while benefiting from the security of a London listing. Both are available at bargain prices as well.

Standard Chartered

Standard Chartered (LSE: STAN) generates more than three-quarters of its revenues from Asia, but this has not always been a plus. It suffered its own annus horribilis in 2014, after getting caught up in the Asian credit boom and bust, while the commodity crash wiped out a whole year’s worth of profits, forcing out the group’s CEO, Peter Sands, and chair, John Peace.

The fightback is nicely underway, with the Standard Chartered share price up 30% in the last year, as profits rose and bad debts fell.

It is up another 3% today, as CEO Bill Winters said the £23bn group’s strategy of the last few years has created a “stronger and more resilient business”, as shown by a 16% increase in underlying profits in the third quarter to $1.2bn.

Return on tangible equity increased 160 basis points to 8.9%, while income climbed 7% to $4bn. The bank recorded “broad-based growth across all segments and regions”, but with particularly strong performance in private banking, and corporate and institutional banking.

Management also completed a $1bn share buyback, reducing the total issued share capital by 3.5%. Its common equity tier 1 ratio remains within its 13%–14% target range at 13.5%, having risen six basis points since 30 June.

All of which looks very promising, and belies its current lowly valuation of just 11.3 times forward earnings. Its price-to-book ratio is also priced to go at 0.6, well below the 1 typically seen as matching balance sheet assets.

Standard Chartered’s dividend is lower than some of the other high street banks, with a forward yield of 2.9%, although generously covered 2.9 times, giving scope for progression. It only restarted payouts in February last year, after a two-year hiatus, so we can expect that to continue rising.

City analysts now forecast a yield of 3.7% for 2020 and are optimistic about earnings growth, predicting 24% this year and 16% next. If the global economy slows, then Standard Chartered may take a hit, but otherwise it looks like a buy for those wanting exposure to fast-growing Asia.

Prudential

Insurer Prudential (LSE: PRU) has seen its share price drop 20% in the last six months, and it trades 3% lower than it did five years ago.

Things aren’t as bad as they look, because recent slippage was down to its long-awaited split with UK asset management division M&G, under which each now lists separately on the FTSE 100. Investors who held stock on 18 October received one M&G share for each Pru share they owned.

I think Prudential continues to offer strong growth prospects, as it looks to expand in the fledgling Asian insurance market, where a growing middle class are crying out for pension and protection products, and to build on its position in the US retirement field.

The £5.5bn group is worth investigating for its bargain valuation of just 9.7 times forward earnings, while its forecast yield of 3% is covered 3.3 times. Today, though, Standard Chartered holds the stage. I’d buy that first.

The post I’d buy these 2 FTSE 100 dividend growth stocks to access the world’s fastest-growing market appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential and Standard Chartered. 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.

That might put some people off but it’s at times like these that you can really pick up some bargains. Investors may be shunning the following two stocks right now, but they still offer plenty of dividend and share price growth potential.

Kingfisher

These are tough times for consumer-facing businesses such as DIY chain operator Kingfisher (LSE: KGF), and you can see that in its share price, which has almost halved in the last three years. The group has been knocked by the UK housing market, as dwindling transaction levels dampen sales at B&Q and Screwfix.

At least UK sales are growing while they have been falling at its French chains Castorama and Brico Depot. Kingfisher has Eastern European operations as well, where Romania has been racing ahead, with Poland growing at a steady lick too.

The falling Kingfisher share price threatens to drive it out of the FTSE 100 as its market cap flutters around the £4bn mark, and incoming boss Thierry Garnier has a big job on his hands when he pitches up next month. Trading at 9.1 times forecast earnings and yielding a forecast 5.6% covered exactly twice, the stock does look tempting though. Especially with City analysts predicting earnings per share will rise 9% this year and 11% next.

If we get a positive Brexit outcome, a snap back in the UK economy could see Kingfisher take wing, and investors who buy now could reap the rewards. The group is debt-free, which adds a layer of security, and could prove a better buy than the market thinks.

Prudential

If you’re hungry for bargain stocks, I’d recommend looking beyond the embattled retail sector and focusing on areas with greater growth potential. Asia-focused insurance giant Prudential (LSE: PRU) is one stock worth checking out.

Its growth strategy is to sell pension and protection projects to the emerging Asian middle class, and the region continues to drive growth to this day.

Prudential’s most recent half-yearly results showed group operating profit from continuing operations jumping 14% to more than £2bn, with Asia delivering double-digit growth across a range of key metrics. Its overlooked US division has also been growing strongly.

The M&G fund management arm demerger, to be completed in Q4, could help drive value in both businesses and lift the Prudential share price even higher. There is an opportunity here as the stock is down 20% in the last month, as falling interest rates, the US-China trade war and Hong Kong political unrest cloud investors sentiment.

However, earnings growth has been steady for years, and analysts continue to predict 7% and 11% growth over the next couple of years. Prudential trades at a bargain valuation of just 8.4 times forward earnings, while the forecast yield of 3.9% is generously covered 3.2 times, and management has shown plenty of progression in the past. I’d take advantage of the current slump to buy Prudential today, with the aim of holding it for the long term.

The post Got £2,000 to invest? I’d consider these 2 overlooked FTSE 100 bargains appeared first on The Motley Fool UK.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.

With this in mind, I believe Royal Bank of Scotland (LSE: RBS) is a stock to avoid, but rate insurer Prudential (LSE: PRU), which released its half-year results today, as a ‘buy’. Here, I’ll explain why exactly I have a negative view on RBS and a positive view on Prudential.

Pedestrian

It seems that just as RBS is getting back on its feet after 10 years of financial surgery, it’s set to be pummelled by a fresh wave of body blows. In its half-year results earlier this month, it advised that it’s now “very unlikely” to hits its 2020 targets of 50% cost:income ratio and 12% return on tangible equity. It said this is due to “current market conditions, continued economic and political uncertainty and the contraction of the yield curve.”

Since then, we’ve had government figures showing the UK economy contracted by 0.2% between April and June. This is the first quarterly contraction in seven years, and raises the spectre of the UK entering a recession — two successive quarters of negative growth —  before Brexit’s even happened.

Banks are highly geared to the performance of the wider economy, and with RBS being domestically focused, a UK recession would hit it hard. Looking to the longer term, the UK is likely to be a lower-growth economy anyway. And with the FTSE 100 containing many geographically diversified businesses, with exposure to higher-growth markets around the world, I think RBS is poorly placed to deliver a higher long-term return than a simple FTSE 100 tracker.

Sure, a share price of 202p gives a low forward price-to-earnings (P/E) ratio of 7.4. But that’s what I’d expect for a highly cyclical business, with what I view as a tough near-term outlook and long-term prospects of only pedestrian growth.

Smashing

Prudential’s P/E isn’t quite as low as RBS’s, but in single-digits at 9.3 is still cheap by historical standards. Moreover, I think its plan to de-merge part of its business will unlock value for shareholders in the near term, while in the longer term, its geographical positioning makes it well placed to smash the return of the FTSE 100.

Prudential intends to de-merge its M&GPrudential business and list it on the London Stock Exchange as a separate company (M&G plc) in the fourth quarter of this year. After the split, existing investors will own shares in both firms. I rate the stock a buy today, because I think the valuation implied by the current share price of 1,460p, will move closer — after the separation — to a sum-of-the-parts valuation of 2,000p.

John Foley, chief executive of M&G, which is carried in Prudential’s results today as a discontinued operation, reckons M&G’s in “great shape to use the freedom of de-merger … to grow this business at scale.”

Meanwhile, Prudential will have valuable American operations and a fast-growing franchise in Asia, where there’s a terrific long-term growth story for its life insurance and other financial products. Indeed, the group today reported a 14% rise in operating profit in both the US and Asia. As such, I see considerably more long-term growth potential in Prudential than RBS.

The post Forget the RBS share price. I’d back this other blue-chip to smash the FTSE 100 appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.