Down 41% and 55%! Are these 2 forgotten FTSE 100 shares now in deep bargain territory?
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I enjoy purchasing FTSE 100 stocks at discounted prices, but these two leave me puzzled. They've been on a downward trend for quite some time and seem like a fantastic deal, yet they just can't seem to rebound. Will that soon be different?
The first company to mention is Prudential (LSE: PRU), an insurance and asset management firm with a focus on Asia. I once made a significant 70% profit from my investment, and for a time, I felt regret for cashing out. I believed that profits would rise quickly as the burgeoning middle class in Asia began purchasing more of its insurance and pension products.
Fortunately, I avoided a setback, as the price of Prudential shares has dropped by 55.79% over the past three years and by 22.27% in just the last year.
Currently, with a price-to-earnings ratio of 9.47, which is significantly lower than the FTSE 100 average of 15.4, it appears to be a worthwhile investment at this time.
The results for the first half of the year, released on August 27, indicated an 8% increase in profit from new business, totaling $1.47 billion. However, this was a significant drop compared to last year’s extraordinary 47% growth. Despite this, the board is optimistic about achieving its medium-term goals and has raised the dividend by 9%. Yet, investors still seem indifferent.
Many of the major FTSE insurance companies and asset management firms are facing challenges, with Aviva being a notable exception. The key point is that most of these companies provide annual income in the range of 7% to 10%. In contrast, Prudential's current yield is quite low at 2.55%, even though the company aims to increase its dividends by 7-9% annually.
While it might generate lower income, it presents greater opportunities for growth in regions such as China, Singapore, India, Malaysia, Taiwan, and Africa.
Fourteen brokers providing one-year stock price predictions have established a median target of 124.3p, reflecting a modest increase of only 0.8% compared to the current price. Until China stabilizes its economy, I believe Prudential shares might continue to lag behind.
I've never invested in Schroders (LSE: SDR), the fund management company, but there have been times when I considered making a purchase. Looking back, I'm relieved that I didn't go through with it, as the stock has dropped by 41.11% over the past three years and by 1.27% in the last year.
Can Schroders Overcome Its Challenges?
In comparison to Prudential, this stock offers an attractive trailing yield of 6.03%. However, the downside is that it comes with a higher price tag, as it is currently trading at 14.50 times its earnings.
On August 1, Schroders reported its first-half results, revealing a record high of £773.7 billion in assets under management, marking a 6.56% increase from the previous year. While the board praised favorable market conditions and strong investment performance, they noted a 7.7% decline in operating profits, which dampened their enthusiasm.
According to 14 analysts who have provided their predictions for Schroders' stock price over the next year, the average target is set at 385.2p. This represents a potential increase of 7.98% from the current price. It's a possibility worth considering.
It seems we need to acknowledge that right now, investors aren't particularly interested in FTSE 100 financial stocks. Investing tends to go in cycles, and this could shift when interest rates eventually decrease, leading savings rates and bond yields to drop as well. If that happens, people might be more inclined to embrace additional risk in hopes of achieving better returns. However, we aren’t at that stage just yet.
I’ve gained plenty of experience in the financial services industry through my investments in high-yield companies like M&G and Legal & General Group. Prudential and Schroders seem to offer solid value, but that has been true for quite some time, and it hasn’t made a difference. For now, I’ll keep them on my watchlist.
