This FTSE 100 share just had a massive price crash. Would I buy it?

The FTSE 100 stock is down 8% because of its exposure to the Asia market. Is it a good stock to buy on dip or is there worse to come?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The insurance company Prudential (LSE: PRU) is the biggest FTSE 100 loser today. Its share price is down by 8% following a weakening in Asian markets earlier today. This can either be a great opportunity for me to buy the stock or a good time to avoid it. That depends entirely on how its prospects look. 

What works for Prudential

Its focus on Asia and Africa means that the insurance and asset management company is increasing its business in growth economies. Rapidly rising incomes now and in the future can continue to create demand for its products. Its latest results look good too. Its adjusted operating profit was up 22% for the half-year ending 30 June compared to the same time last year. 

The downside to the FTSE 100 stock

However, Prudential’s share price is not among the best performing around. It has bounced back nicely from the stock market crash of March 2020, which I use as the go-to reference point to figure out how far FTSE 100 stocks have come since the last low point. It has almost doubled since. But in the past year, the increase has been only 14% until the last close. And the number would be even smaller after today’s sharp fall. 

Additionally, the company does not pay much of a dividend either. It has a dividend yield of less than 1%. This means, that if I buy the stock it is only keeping growth in mind. And it has not shown much of that either. 

The gloom could last

It can bounce back from the sharp fall seen today, because the decline has really very little to do with it. Bad news from property developer Evergrande in China has spread gloom around global stock markets. It is little wonder that Prudential, with its Asia focus, has suffered in particular. As some more rationality sets in, things could look better for it.

At the same time, there is no way of knowing right now if the Evergrande situation is just a one-off event or if the stock market softening will continue. Doomsday predictions are appearing thick and fast, comparing the current situation to 2008. Evergrande’s potential collapse has even been called to China’s ‘Lehman Brothers’ moment. We will know in the next few days how things turn out. 

An alternative stock to buy on dip

In the meantime, I will avoid the Prudential stock. Instead, in terms of insurance stocks, I’ll consider the likes of Legal & General. It has seen a share price increase of over 50% in the past year, which is much more than Prudential. Further, it pays great dividends too. It has a dividend yield of 6.4%, which is almost three percentage points higher than the average FTSE 100 dividend yield. And it even has a lower price-to-earnings ratio of 8.3%, which is around half of Prudential’s ratio. 

Last, but not the least, its share price is down today as well. It is down much less by 3.5%, but if there is a stock I’d like to buy on dip, it’s this. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »