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A value stock I have firmly on my radar this month is Prudential (LSE:PRU). In fact, I have decided that if I can free up some funds this month, I will buy some shares for my holdings.
This is why.
Current problems, but growth ahead?
Financial services giant Prudential has an established brand, a decent track record to fall back on and a broad footprint.
However, it hasn't been a great time for Prudential stock lately due to volatility, but more on that later.
Over a 12-month period, the shares have fallen 37%, from 1,026p at this time last year, to current levels of 637p. While this drop is worrying, I think the silver lining is an opportunity to buy quality shares in a company that I can see growing exponentially over the next few years.
Pros and cons of buying stocks
For me, it is not difficult to understand why Prudential shares have fallen in recent months. Indeed, many financial services companies around the world have suffered a similar fate. Higher interest rates and rampant inflation have created a cocktail for disaster. For Prudential, in particular, its strong presence in Asian markets has not helped recently. Concerns about economic problems in China have halted its progress. In addition, the region's growth markets have also reported a slowdown. These are ongoing issues that I will be following closely.
From a bullish perspective, I view the current risk mentioned above as a short-term issue. Prudential's strong brand power and presence in one of the wealthiest regions could be the catalyst for higher earnings as well as returns. Moreover, I don't see its stock trading at this low level for too long. Wealth is expected to rise in Asian countries where Prudential is well established, and many consumers will look to make the most of Prudential's products, especially life insurance.
The stock also appears to have a good price-to-earnings ratio after the drop. It is trading at a price-to-earnings ratio of just over nine.
Furthermore, the stock offers a dividend yield of 2.5%, which I believe will increase in the future. However, I understand that dividends are never guaranteed. On top of this, the company recently announced a $2 billion share buyback plan, which is another positive sign.
Finally, in recent months, management has been buying thousands of shares. To me, this is generally a good thing, as the company's management is also putting their hard-earned money at stake. Who better than the management to understand where the company is headed?
Final Thoughts
When looking at the investment case, the pros far outweigh the cons. Prudential looks like the kind of stock that could really help me build wealth now and in the years to come.
What makes it even better is the attractive valuation and exciting growth prospects. However, I am concerned that global economic shocks could make the recovery of the share price and performance slow. As a reckless investor looking to buy and hold for a long period, I have no problem with this.
