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In retrospect, we know there was an incredible opportunity to buy Rolls-Royce when he FTSE 100 Stocks were trading for pennies in 2020. They were down, but certainly not in decline.
Therefore, it stands to reason that today there may be other offers hiding in plain sight. I think I've seen one. Here are five reasons why I think this Footsie stock could rebound strongly.
Interest rates
I'm talking about a life insurance company. Prudential (LSE: PRU). Its shares are currently trading near multi-year lows after falling 50% in five years. In fact, they recently hit their lowest level in 10 years!
One reason for this is that insurance stocks in general have fallen out of popularity. For example, Legal and general and Phoenix Group have fallen by 15% and 27% respectively in the past five years.
Higher interest rates can affect the profitability of insurance companies in several ways, creating uncertainty. However, rates are expected to start falling this year, which should improve investor confidence.
China's prospects improving
However, higher rates don't explain most of the weakness in Prudential's share price. The Asia-focused group is headquartered in Hong Kong and has exposure to the Chinese insurance market.
As we know, China's economy has been sluggish for some time and is suffering from a long-lasting real estate crisis. Any further economic weakness presents a risk to Prudential's growth and earnings.
However, the outlook for the world's second-largest economy has been improving. In the first quarter, GDP grew 5.3%, faster than expected. This puts it on track to hit its official annual target of 5%, which is good news for the company.
Share buybacks
Analysts expect Prudential to post earnings per share (EPS) of 97 cents in 2024, representing 55% year-over-year growth. This puts the forward price-earnings ratio at just 9.7.
The cheapness of the stock has not gone unnoticed. On June 23, the insurer launched a massive $2 billion share buyback program. This is expected to be completed no later than mid-2026.
Buybacks tend to increase the EPS metric, as there are fewer shares to split profits among. They can also support share price growth, as well as being a sign of financial strength.
In fact, the stock is already up 4.5% since this buyback announcement.
Dividend growth potential
Additionally, the company pays a dividend that is covered more than four times by projected earnings. This suggests there is plenty of room to increase the amount of cash it allocates to dividends.
And although the yield is only 2.2%, the company said it expects to increase this year's annual dividend by 7% to 9%.
Of course, payments will depend on the company meeting its financial goals, which is not guaranteed. These include increasing startup profits at a compound annual growth rate of 15% to 20% between 2022 and 2027.
Not only China
Finally, Prudential's future growth does not depend only on Hong Kong and mainland China. It is growing well in Thailand and India, while increasing its presence in Africa.
These are markets that have low insurance penetration rates compared to the West, indicating high growth potential. And there is a combined population of 4 billion!
For all the reasons set out above, I think Prudential shares could recover very strongly from 738p over the next few years. That's why I'm considering adding some to my portfolio in July.