Stock market

3 Reasons Why Legal and Common Stock Can Be a Fantastic Bargain!

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Legal and General The group(LSE:LGEN)’s rock-bottom share price has attracted renewed interest from bargain hunters in recent sessions.

Legal & General's share price performance since 2019.
Created with TradingView.

In seven days from Friday (May 17). FTSE 100 The life insurance company was the eighth most popular stock to buy. Hargreaves Lansdowne customers. between AJ Bell Customers, it came in fifth.

I am not surprised that the stock is in high demand. I bought it for my Self Invested Personal Pension (SIPP) last month. I think this is one of the best bargain shares of Footsy, and here’s why.

PEG ratio

There are two ways to estimate share price based on forecasted profits. A popular metric is the price-to-earnings growth (PEG) ratio, which values ​​a share based on its growth rate.

Higher than normal interest rates are a threat to the entire financial services industry. Yet Legal & General is tipped by City analysts to grow 236% in annual revenue in 2024.

This makes it trade at a forward-looking PEG ratio of below 0.1. Any sub-1 reading indicates that a part is undervalued.

P/E ratio

Another thing to consider is the company’s price-to-earnings (P/E) ratio, which is 10.2 times. As the table above shows, its multiple is lower than many of its industry rivals, as well as the FTSE 100 share average.

Forward P/E ratio
Aviva 11.2 times
AXA 9.6 times
Prudential 10.6 times
Allianz 10.8 times
Met Life 8.6 times
Aegon 8.3 times
FTSE 100 11 times

Dividend yield

On top of that, Legal & General is also an attractive buy for value investors looking for passive income. Its forward dividend yield of 8.5% is more than double the FTSE 100 average, as shown in the table below.

It also beats all its competitors based on this metric.

Forward dividend yield
Aviva 7%
AXA 6.3%
Prudential 2.2%
Allianz 5.6%
Met Life 2.9%
Aegon 5.5%
FTSE 100 3.5%

Decision

Unfortunately, the Footsy company does not look very attractive in terms of its assets.

Its price-to-book (P/B) ratio is 3.5. As the chart shows, this is above the corresponding readings for its major competitors.

P/B Ratio of Competitors of Legal and General.
Created with TradingView.

However, my judgment is that legal and generic shares still offer the best all-round value. On the downside, it will have to weather tough trading conditions to deliver strong profit growth. It also faces considerable competitive pressure from the companies mentioned above.

But the financial services giant still has significant growth opportunities over the long term. I don’t think this is reflected in the cheapness of its shares.

A bargain?

Take the asset management sector, for example, an area in which the firm is a major player. PwC expects global assets under management across the industry to reach $145trn by 2025. This is almost double the amount recorded in 2016.

The outlook for the firm’s insurance and retirement products division is equally bright. Demand in these categories will also be boosted by factors such as an aging population, wealth accumulation, technology and innovation, and growing concerns over state benefits.

I am confident that Legal & General has the expertise and brand strength to effectively leverage this improving backdrop. And at 252.8p, I don’t think its share price is a fair reflection of that.


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