Beginning a starter portfolio is a daunting task. There are thousands of shares listed in the UK alone and figuring out which of them will stand the test of time and deliver solid returns over many years can seem like a herculean challenge. That’s why I think blue-chip stocks are the way to go when you’re starting out.
A familiar name
And one of my favourite blue-chips is Prudential (LSE: PRU), which is geographically diversified and offers investors exposure to the massive insurance industry. Life insurance is Prudential’s key focus and concomitant with that is its huge asset management arm, which invests the cash received from life insurance customers with the aim of creating long-term value in order to eventually pay out on policies.
Prudential has large insurance operations in the UK and Asia and operates as an asset manager in these regions as well as in the US. As expected, its UK business is a largely mature one and the recent combination of its domestic life insurance and asset management operations into one company suggests a spin-off could be pursued in the near future.
However, the US business is growing quickly and the long-term potential of its Asian operations is astounding. In the first half of 2017, group operating profit rose 9% year-on-year (y/y) with Asian operations surging ahead 16% and the US business contributing 7% growth.
In Asia the group is benefitting as increasingly wealthy middle-class consumers begin to seek out life insurance and money management expertise. While many Western financial providers are flocking to tap into this wellspring of long-term profits, Prudential has a huge lead due to its well-respected brand names, 90-year history in the region and operations stretching across 14 markets.
With a long history of delivering impressive shareholder returns, a nice 2.4% dividend yield, very good growth prospects and an attractive valuation of 13.3 times forward earnings, I believe now could be a great time to begin a position in Prudential.
A speciality stock
Another stock in the sector that I believe would make a great addition to many portfolios is Jardine Lloyd Thompson (LSE: JLT). The group is different from Prudential in that rather than writing policies itself, it serves as a consultant and broker for speciality insurance and reinsurance needs for everything from mines to sports events and protecting against political unrest.
The group’s growth has accelerated in recent years as management has gone about consolidating its position in this highly fractured sector. In the half year to June the group’s speciality insurance business revenues grew 12% y/y at actual exchange rates and 3% on an organic basis. Growing operations in the US, Asia and Latin America more than compensated for staid growth in its European operations.
Looking ahead, I see impressive growth potential for the group as it pushes into these massive new markets and scales up. In its interim management statement released this morning, management reiterated that it expects the US business to turn its maiden profit in 2019 and over the long term I see the potential for this new division to become as important as core European operations currently are.
These growth prospects together with the stock’s decent 2.5% dividend yield have me very interested in JLT despite a lofty valuation of 22.5 times forward earnings.
