Should I Buy Prudential?

LONDON -- It's time to go shopping for shares again, but where to start? High-spirited Diageo? Smoker's friend British American Tobacco? Pharmaceutical star AstraZeneca?

There are plenty of great stocks to choose from, and I'm enjoying doing some window shopping. So here's the question I'm asking right now. Should I buy Prudential (ISE: PRU.L) (NYS: PUK) ?

Thiam's the man
The last couple of years have been a roller-coaster ride for Prudential chief executive Tidjane Thiam. In 2010, he made a hash of his 36 billion-pound attempt to buy AIA Group, the Asian arm of American International Group, and was nearly ousted in the subsequent shareholder revolt barely a year into the job.

By September this year, his stock had risen so far that he turned down a top job at the World Bank, despite rumors of a personal plea by U.S. President Barack Obama's chief-of-staff. Thiam said that he was committed to Prudential, and the time, those revolting shareholders were celebrating.

Thiam's stock isn't the only one that has risen. Prudential's share price is up more than 30% this year, and currently trade at 8.16 pounds. Does that make it a buy?

Yield ain't everything
There are plenty of solid blue chips on eye-catching yields at the moment, but Prudential isn't one of them. It trades on a relatively modest yield of 3.13%, a pittance compared to the 8% paid by nearest U.K. rival Aviva. Thereafter, the comparisons all work in favor of Prudential.

The U.K.'s biggest insurer has powered through the financial crisis. With a market cap of 21 billion pounds, it is now twice the size of Aviva at 9.5 billion pounds, yet the two were similarly sized five years ago. Prudential has also overtaken European rivals Axa, Generali and Zurich, vindicating the insurer's decision to expand its operations eastwards.

A juicier dividend would be a nice way for loyal investors to profit from Prudential's success, but we can't complain too much. In 2011, it raised its dividend by a whopping 20% as operating profits surged 24%.

Eastern rising
Prudential continued to defy the financial headwinds by growing strongly in the first six months of 2012, boosting new business profits by 7% and operating profits by 13%. In Asia, sales grew 21% and profits grew 18%, driven by the insurer's success in markets such as Indonesia, Malaysia, and Singapore.

With sales and profits in the U.K. up just a relatively lowly 1% and 4%, respectively, Prudential's emerging market strategy is showing signs of Eastern wisdom. But its U.K. fund managers of subsidiary M&G has been a success, producing 4.9 billion pounds of net inflows in the first half, up from 2.9 billion pounds in the same period last year.

My aim is Pru
Unlike Aviva, Prudential has played the financial crisis nicely, and even began offloading its exposure to peripheral eurozone debt three years ago. Its strategy of imposing financial discipline and prioritizing value over volume has paid off.

Its share price has dipped 4% over the last month, after hitting a 12-month high of 8.64 pounds in mid-September, and it trades on a forecast price-to-earnings ratio of 12.1 for December. Not cheap, but not too pricey, either. Prudential isn't showing many signs of weakness these days, so this may be a good time to buy. It could be time to get out my wallet.

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Harvey owns shares in Prudential, Aviva and Diageo. He doesn't hold shares in any other company mentioned in this article.

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