One value stock I’m adding to my holdings is Legal & General (LSE: LGEN).
Market volatility due to macroeconomic factors in recent months has pushed many UK shares down. I believe now could be an opportunity for me to pick up cheap shares in a quality business like Legal & General.
Financial services
As a quick reminder, Legal & General is a UK-based financial services business best known for its life insurance products but it also has many other facets to its business. With origins stretching back nearly 200 years, it is one of the better-known financial services establishments in the UK.
Let’s start by taking a look at Legal’s share price, which I believe has fallen into value stock territory. As I write, the shares are trading for 236p. Over a 12-month period, they’re down 7% from 256p at this time last year. More recently, they have fallen 10% from 265p in March to current levels.
Why I’m bullish on the shares
To start with, Legal has a diverse set of interests. Although best known for insurance products, it also has a retirement and investment arm too. This diversification can help boost growth and increase performance and investor returns.
Moving onto returns, Legal shares currently possess an enticing dividend yield of 8.2%. This is substantially higher than the FTSE 100 average. Furthermore, Legal has a great record of dividend payouts and has been paying its investors for decades. However, I am conscious that dividends are never guaranteed.
From a value stock perspective, Legal shares look like a bargain currently on a price-to-earnings ratio of just six. The index average is more than double this amount.
Finally, I’m excited to learn the future direction of the business with the impending arrival of new CEO António Simões. He’ll start his position in January 2024. His international experience in the financial services industry could unlock new growth avenues for the business. In turn, this could boost future earnings and investor returns.
From a bearish perspective, Legal may see that the cost-of-living crisis could dampen its performance and demand for products. Consumers may need their cash for essentials, rather than non-essential insurance products and investments.
Another issue I need to be wary of is that some of Legal & General’s business is linked to equity and credit markets. This is potentially risky due to current rising interest rates. All of this could hinder Legal’s share price recovery, at least in the short term.
A value stock I’m buying
Overall I believe Legal & General is a great option for my holdings as a long-term buy-and-hold option. The passive income opportunity alone is exciting. In addition to this, future growth and its lofty reputation as a trusted establishment fill me with confidence that it could provide stable returns for my holdings.
