The Legal & General (LSE:LGEN) share price had a decent end to 2021, much like the FTSE 100 index. Over the course of 2021, the insurer’s shares rose by 12%. If you add in a dividend yield that for most of 2021 was in excess of 6%, it provided both income and growth to investors.
As I hold some shares already, I’m now asking myself whether I should stick or twist. I’m thinking that the Legal & General share price has much further to rise, so I’m very likely to twist and add more.
A rotation to value
Conventional wisdom appears to be that as inflation sets in, lower valued stocks providing jam today will do better than those promising jam tomorrow. Legal & General fits into the former category.
AJ Bell investment director Russ Mould said earlier this week: “Overnight US bond yields rose – reflecting expectations that the US Federal Reserve might go further and faster on rates if, as the market now seems to expect, the US economy shrugs off Omicron rapidly. This saw a rotation out of technology stocks as the prospect of jam tomorrow is less appetising when jam today is available more cheaply from undervalued stocks poised to benefit from wider economic growth.”
If correct, this bodes well for Legal & General. It is arguably still very much an undervalued UK share. The price-to-earnings ratio is 14.
Analyst expectations
Analysts at Jefferies have recently upgraded their recommendation for shares of Legal & General from ‘hold’ to ‘buy’, and raised their target price from 290p to 340p.
Upgrades to analyst expectations can provide an immediate boost to a company’s share price. It’s certainly a positive sign. Also, the target is comfortably ahead of the current share price.
As a shareholder in Legal & General, I remain hopeful of further upgrades to analyst expectations.
Other reasons the Legal & General share price should do well
Legal & General has built up an outstanding investments business, especially when it comes to offering consumers passive investing products.
It’s also doing very well in bulk annuities with major employers and expanding that into the US. In August 2021, the media also reported that the insurer plans to expand into China.
Why the shares might not perform
The big risk is how correlated the insurer and asset manager is with the UK economy. With inflation biting, consumer spending may fall and the economy may take a hit. That would be bad news for the shares. The company could also be hit by miscalculations of its annuities, which could negatively affect earnings. Last, as a financial institution, it could be at risk of a crippling cyber attack.
Overall, I think the Legal & General share price will go up this year as investors seek higher income and steady shares. It’s performing well and has exposure to long-term trends like an ageing population and increased needs for retirement solutions.
I set a price target of 425p per share by the end of the year, based on predicted earnings per share times the current P/E ratio. That would be an increase of 40% on the current share price. If it happens this would be an outstanding result for a FTSE 100 company (but of course, I could be wrong!). Nevertheless, I’ll be looking to buy more shares in Legal & General for my own portfolio.