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Prudential: "Buy a Piece of the Rock"

09/29/2015 8:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

Highly divergent views regarding interest rates and a slowing global economy are causing a tug-o-war in the market, observes Mark Skousen in Private Equity Trader.

But more important is the Fed’s behind-the-scenes efforts to print more money to the tune of a 7-8% growth rate in the money supply (M2) in the past three months. This easy-money policy will work its magic as we approach the final months of 2015.

One financial institution that will benefit from the Fed’s policy is Prudential Financial (PRU), the giant insurance and investment company based in New Jersey.

Prudential will continue to benefit from an aging population with its life insurance and annuity products. But I also foresee progress in its Prudential Investment Management division.

It has aggressively expanded after recently acquiring the Indian asset management business of Deutsche Bank. That business has $3 billion in assets.

Prudential is a great value play that also has growth potential. It is selling at only 7.50 times its expected 2015 earnings, so it is an incredible bargain (the industry as a whole is selling for 11.5 times forward earnings).

The insurance giant also sports a price/earnings to growth (PEG) ratio of only 0.73. Anything less than 1 is considered excellent for future growth.

Finally, analysts have raised their earnings estimates in the past year and now expect PRU to earn $10.50 per share this year.

In its most recent quarter, earnings jumped 29% to $2.5 billion on $62 billion in revenue.

It has $56 billion in cash on hand, far above its debt level of $46 billion. It has plenty of cash to pay a dividend that yields 3% (offering a rising dividend since 2011).

Let’s buy a piece of the rock by investing in Prudential and setting a protective stop of $66 a share.

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