Prudential shares: 5 reasons to buy (or not buy) in 2023

At Prudential (LSE:PRU) share price fell 12% in the course of 2022. But the life insurer bounced back in the last month of the year in the hope of increasing profits in China.

The overwhelming view among City brokers is that now is a good time to buy FTSE 100 company as well. Out of 19 analysts with ratings on Prudential stock, 17 rate the company a ‘buy’. One person is neutral in the business, but there is a ‘sell’. That’s according to stock screener Digital Look.

Will Prudential’s stock price rise again? And should I buy Asia-focused businesses for my portfolio in 2023?

3 reasons to buy

The ongoing battle against Covid-19 in China weighed on investor appetite for ‘The Pru’ last year. But news from the company’s flagship market has been more encouraging in recent months.

Beijing has now dropped its zero-tolerance approach to infections and ended the lockdown. There are also rumors that lawmakers may reopen the border between the mainland and Hong Kong, possibly as early as next week.

Improving economic conditions in China and Southeast Asia is important to Prudential. It is a big bet in Asia and it leaves British and US operations to concentrate on this unexploited region. It’s a strategy that can pay off handsomely as wealth levels in this emerging market continue to grow.

Analysts at GlobalData estimate that life insurance premiums written in Asia Pacific will increase at a compound annual growth rate (CAGR) of 6.5% between 2021 and 2026.

I think Prudential’s tremendous brand strength gives it an edge in this rapidly evolving market. Brand recognition is your most powerful weapon when it comes to financial services. And the business has spent 175 years building a reputation as one of the most trusted life insurance providers.

2 reasons to avoid it

The story of Prudential’s share price in 2023 will be dominated by the coronavirus crisis in China. And while things are moving in the right direction, a recent explosion in infection numbers could see mass lockdowns begin again.

The next demand for life insurance could pull up the company’s stock price again. It can also affect the level of dividends the company pays out if the profit tank.

It is also important to consider that other financial services companies are also aggressively investing in Asia. Prudential may have a tough time growing earnings like its main rivals Allianz and Ping An the water.

Verdict

But, on balance, I think life insurance is a good stock to own for the long term. So I continue to hold the stock I first bought two years ago.

City analysts think that Prudential’s earnings will rebound 80% in 2023. This makes the company trading at a forward price-to-earnings growth ratio (PEG) of only 0.2, well below the bargain benchmark of 1. At these prices I consider buying the stock more this January.