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I spend a lot of my time looking for UK stocks that have been through a rough patch but look ripe for a recovery. The next two FTSE 100 stocks have been struggling for years, but this may offer me a once-in-a-decade opportunity to buy while they're cheap.
I had insurance Prudential (LSE: PRU) about a decade ago and made a lot of money from it. I don't remember why I sold it, but I'm glad I did. Prudential's share price has plummeted 39.54% over the last year. In five years, it has dropped 43.51%. However, its volatility has given me the opportunity to dive back in.
The insurer is a play for the emerging middle class in Asia and Africa, who need to buy their own pensions and protection, rather than relying on the state. Prudential was supposed to clean up by selling into this huge and growing market.
It's certainly cheap
As with many things happening with emerging markets, the hype has fallen short of reality. Today, Prudential appears to be trading cheap at 9.77 times earnings. However, this is a fairly poor income stock, yielding just half the FTSE 100 average at 1.97%. I remember the performance was poor when I had it too.
Pru's new trading profits for the nine months to September 30 grew a seemingly impressive 37% to $2.14 billion, but that was actually a drop from the 39% growth in the first half.
The struggling Chinese economy is the real problem here. However, as J.Morgan As he recently pointed out, when it comes to the Pru, fear outweighs fundamentals. I'm tempted, but the stock has performed so poorly for so long that I'd rather watch it than buy it. That poor performance doesn't help either.
Best income game?
Commercial real estate has taken a beating, just look British land (LSE: BLND). Its shares are down 40.39% in five years and 18.8% in one.
It's not as cheap as Prudential, trading at 12.29 times earnings, but it yields a much juicier 6.32%. I've been wondering for months whether to buy it or not. So far I haven't missed much.
British Land, like the rest of the real estate investment trust (REIT) sector, has been hit by a storm of unfavorable trends. The group's business parks have been hit by online shopping, office blocks are threatened by working from home, while higher interest rates have hit the value of its assets.
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However, British Land has some drag, with occupancy rates of 96.2%, an average lease term of five years and £472m in annual rental income at a 6% yield. It also has £1.7bn in undrawn cash and credit facilities. Profits are growing, but only slowly, rising 3.4% to £142m in the year to September 30. Few expect them to suddenly skyrocket. However, the dividend per share increased a solid 4.8%.
Commercial real estate has experienced a flight to quality, which appears to include British Land. Plus, it has diversification away from London's troubled office sector. Investors will look more favorably when interest rates begin to fall. There are risks, obviously, but also rewards. When I have some cash to invest, I will buy it over Prudential. Although I suspect I'll have to be patient.
