5 reasons why Legal & General’s share price is a brilliant bargain!

At Legal & General In the last month, the share price LSE.LGEN) changed to +14%. It is a derivative that reflects investors’ fears that profits could fall as the global economy slows.

Spending on life insurance and other financial products may fall sharply when times are tough.

However, as a long-term investor this fall caught my attention. This is because Legal & General shares look very attractive at the current price of around 257p.

At FTSE 100 the company trades at a forward price-to-earnings (P/E) ratio of just 7.5 times. This is less than the average of 13.5 times for London’s blue-chip index.

Legal & General’s dividend yield in 2023 is 8%. This is a reading that is more than double the FTSE index average of 3.7%.

A tough environment

Of course some stocks trade cheap for a reason. Low valuations are common in high-risk stocks and these UK stocks face their own problems.

And as I said, demand for the types of products that Legal & General sells can drop when consumers feel the pinch. The concern for FTSE 100 companies is that the world economy may be worse than forecast in 2023. By extension, current earnings (and possibly dividends) forecasts for the firm can be in serious danger.

Today Saadia Zahidi, managing director of the World Economic Forum, warned the audience in Davos that “The global economy is in a precarious position“. A poll of analysts conducted by the body also shows that the majority now expect a recession across the planet this year.

Structural opportunities

However, this is a risk I am willing to take. As a long-term investor, I believe the potential for Legal & General stocks to generate very strong returns.

First, the business is positioned to take advantage of two structural trends. People are becoming more financially savvy and sales of investment, pension and insurance products are increasing.

What’s more, the size of the parent population in key US and European Legal & General markets is growing rapidly. So companies can expect sales of pensions, annuities, equity release mortgages and other special retirement products to increase in the coming decades.

balance sheet benefits

I also like Legal & General because of their excellent track record of cash income. As an income investor this is particularly encouraging because it gives the dividend forecast extra strength. The company’s Solvency II capital ratio has been between 225% and 230% in the past two months.

A cash-rich balance sheet also gives the company scope for acquisitions and investments to drive long-term growth. Last year, the company made its first investment in the US to create a real estate platform in the science, research and technology industry. It has the financial ammunition to make more investments in growth areas like housing and the green economy.

On balance, I believe Legal & General stocks are probably too cheap to miss right now.