[Just beginning your investing journey? Check out our guide on how to start investing in the UK.]

Prudential

What it does: Prudential is a life insurance and asset management company operating solely in Asia and Africa.

By Andrew Mackie: Following the spin-off of its UK and US businesses, Prudential (LSE: PRU) is now focused entirely on some of the world’s fastest growing markets. This makes complete sense when one considers its growth drivers. Across Asia, for example, despite rising levels of prosperity, insurance penetration is still extremely low. This market is estimated to be worth $1.8trn.

What I particularly like about Prudential is that it is diversified across geography, channel and product. Not only does this provide it with multiple sources of growth but also adds resilience to its business performance. Its distribution network encompasses over 500,000 licensed agents as well as through partnerships with banks (known as bancassurance).

Prudential’s share price has come under severe pressure throughout 2022. It is down 30% year to date. This has been primarily driven by the ongoing closure of the border between Hong Kong and Mainland China. This has hit revenues in its largest market. However, when one considers the explosive growth potential across several of the regions it operates in, today’s depressed share price offers investors an attractive entry point.

Andrew Mackie owns shares in Prudential.

Games Workshop

What it does: Games Workshop designs, manufactures, and sells fantasy miniatures for its Warhammer tabletop gaming experience.

By Zaven Boyrazian. Games Workshop (LSE:GAW) is arguably one of the world’s most recognised tabletop gaming companies. This is the group behind the immensely popular Warhammer franchises, generating the bulk of its revenue through selling miniatures to hobbyists through its global network of retail partners.

Over the last 12 months, the share price hasn’t been the best performer, dropping by over 40%. It seems investors are growing increasingly pessimistic about the short-term performance of this consumer discretionary business. And the latest trading update did show some shrinkage in profits, as consumer spending takes a hit from the cost-of-living crisis.

However, this drag on earnings ultimately stems from a short-term problem. And with the group’s long-term strategy still intact, backed up by an impressive cash war chest of £71m, I can’t help but see the recent share-price drop as a buying opportunity for my portfolio.

Zaven Boyrazian does not own shares in Games Workshop.

Smurfit Kappa Group 

What it does: Smurfit Kappa manufactures packaging products for e-tailers, supermarkets, consumers and industrial customers. 

By Royston Wild. A slew of positive trading updates from the packaging sector would encourage me to buy Smurfit Kappa Group (LSE: SKG) shares for November. 

The FTSE 100 business released financials of its own on Wednesday, 2 November. I think this could help it to record further healthy share-price gains across the month, and beyond. 

Industry rival Mondi reported a 55% rise in underlying EBITDA in the third quarter, it reported in October. It commented that “higher average selling prices and overall volume growth more than offset significant cost pressures.” 

Shortly before this, DS Smith announced that it expected “very strong” revenues growth in the six months to October. Trading was so strong in fact that the firm lifted its half-year profits forecasts. 

Smurfit Kappa’s cheap share price certainly leaves scope for fresh gains if its own financials impress. The packaging powerhouse trades on a forward price-to-earnings (P/E) ratio of just 7 times. 

Royston Wild own shares in DS Smith. 

AstraZeneca

What it does: AstraZeneca is a biopharmaceutical company that develops medicines used by millions of patients worldwide.

By Charlie Carman. AstraZeneca (LSE: AZN) has been a top FTSE 100 performer for a decade. An anticipated return to pre-Covid levels of cancer diagnostics should boost sales for the healthcare heavyweight’s range of oncology products, including Tagrisso, Lynparza, and Imfinzi.

Indeed, AstraZeneca is well positioned for an ongoing transformation in global demographics. Demand for pharmaceuticals to treat chronic diseases continues to rise, and the World Health Organisation predicts one in six people will be aged over 60 by 2030.

Disappointingly, the business suffered a recent setback in a trial for a nasal spray version of its Covid-19 vaccine. Initial testing revealed it didn’t provide adequate protection in humans. However, there’s more to the company’s drugs portfolio than coronavirus treatments, and I think growth prospects look bright elsewhere.

AstraZeneca’s share price has fallen nearly 15% since reaching a 52-week high in August. I believe this presents an attractive buying opportunity to increase the position in my shares.

Charlie Carman owns shares in AstraZeneca. 

Persimmon

What it does: Persimmon builds houses. And when prices are right, it builds up its land bank to build even more houses on.

By Alan Oscroft. The long-term argument for investing in Persimmon (LSE: PSN) is, I think, straightforward. The UK is in the grip of a chronic housing shortage. And our listed housebuilders enjoy strong barriers to entry.

The short-term argument against buying now is the economy, and the growing fears of house price weakness. After all, the Persimmon share price has fallen 50% over the past 12 months, and we don’t want any of that, do we?

Well, actually, I remember the previous housebuilder slump, and I noticed Persimmon was buying up building land when it was cheap. And after that, the shares entered a long and strong bull run. So what’s happening now? Persimmon has been buying up land again.

But the bottom line for me is a P/E ratio of only about five, and a 19% forecast dividend yield. The short-term risks are real, but I think Persimmon is oversold.

Alan Oscroft owns Persimmon shares.

Renishaw

What it does: Renishaw designs and manufactures high-precision measuring equipment and healthcare technology.

By Stephen Wright. I’ve gone for FTSE 250 stock Renishaw (LSE:RSW) as my best British shares to buy in November. This is a business that’s growing, is well protected, and has a strong balance sheet.

Renishaw makes specialist equipment, which it sells to various end markets, including agriculture, healthcare, and power generation. The company has over 1,800 patents protecting its products. 

The company’s balance sheet also looks sound to me. Renishaw has £16.25m in total debt and £141m in cash, which means that I don’t think it’s in much danger with interest rates rising.

Earnings have been growing at an average of 6% annually over the last decade. But the stock has fallen by almost 30% since the start of the year and is now trading at a P/E ratio of 21. 

Stephen Wright does not own shares in Renishaw.

Taylor Wimpey

What it does: Taylor Wimpey is one of the UK’s largest housebuilders, selling homes to private customers and local housing associations

By Paul Summers. The share prices of UK housebuilders have come under serious pressure in 2022 over concerns that rapidly rising interest rates and a protracted recession will dampen demand. Taylor Wimpey (LSE: TW) has been one of the biggest casualties, losing half its value since the beginning of the year.

This may be an opportunity for long-term-focused Fools like me. The FTSE 100 firm is clearly in far better financial health than it was during the Great Financial Crisis. And while dividends can’t be guaranteed, the 10% yield also looks more secure than the payouts on offer from Taylor Wimpey’s rivals. 

CEO Jennie Daly’s comments on the company’s outlook will be closely scrutinised when it releases a trading update early in November. With a P/E of just five, however, I suspect a lot of fear is already priced in. 

Paul Summers has no position in Taylor Wimpey.

Legal & General

What it does: Legal & General is a British multinational company that provides insurance, savings and investment products.

By Nathan Marks. I’m looking to Legal & General (LSE:LGEN) for my top British shares to buy for November. As one of the UK’s largest pension funds, it’s been grappling with the recent chaos in the bond market.

The Bank of England took emergency intervention in early October. That was to mitigate a material risk to the financial stability of the types of services that Legal & General provides. However, the company said that this episode had a “limited economic impact” on its businesses and still expected a full-year operating profit of 8%.

Market volatility could still worsen, causing further uncertainty in the company’s balance sheet and liquidity. However, the stock looks great all-round value and I think it’s been oversold. Today it trades at a P/E ratio of 6.8 and yields a very attractive 8.2% dividend.

It’s hard for me to ignore this strong business with historically robust demand for its products and services.

Nathan Marks has no position in Legal & General.

International Airlines Group

What it does: International Airlines Group is an Anglo-Spanish multinational group that is host to renowned airlines such as British Airways, Iberia, Aer Lingus, Level, and Vueling.

By John Choong. Despite a potential recession on the cards, travel demand still remains robust. As such, I think International Airlines Group (LSE:IAG) shares look lucrative at their current price.

In its most recent trading update, the firm disclosed that demand for travel remains strong and is still recovering to 2019 levels. There also seems to be an uptick in business and upper-class travel, which was echoed by its American competitors. CEOs are of the opinion that consumers are still spending despite inflationary pressures, just less on goods but more on services. Therefore, IAG is expected to benefit as the holiday season approaches.

Nonetheless, it’s worth noting that IAG’s high debt-to-equity ratio (107%) isn’t ideal in a high interest rate environment, and is something investors should definitely take note of. The group will have to hope that its free cash flow continues to remain robust through an economic slowdown in the medium term, or risks damaging its bottom line and sending its share price back down.

John Choong has no position in IAG.

One sector that has taken a battering recently is insurance. In particular, I’ve been tracking two stocks I believe are in serious bargain territory.

Prudential

When it comes to growth stocks, the insurance sector doesn’t spring to mind. However, Prudential (LSE: PRU) is undoubtedly a growth business.

The company has reinvented itself lately. Its business model is now aligned solely to the long-term structural growth opportunities in Asia and Africa.

It offers a diversified suite of insurance products, including health and protection, which accounts for over a third of all new business profits.

Despite fast-rising prosperity, people in Asia still have low levels of insurance cover, with 39% of health and protection spend met by individuals directly. A large unmet need has created a vast health protection gap estimated at $1.8trn.

In the next 10 years, the size of the industry revenue pool across its core markets is expected to grow by $900bn. Translated to its Asia business, gross written premiums are projected to more than double in that time to over $60bn.

Of course, these are just estimates and there are no guarantees. At present, shareholders are more concerned with short-term headwinds. Rolling Covid restrictions in India, Malaysia and Singapore have dented margins. In Hong Kong, the closure of the border with Mainland China has resulted in overall annual premium equivalent (APE) in its largest market slump 10%.

Prudential’s share price is down 33% year-to-date. Yes, it could fall further. Nevertheless, I intend to buy its shares.

Legal & General

My second insurance stock pick is a traditional income one. Like Prudential, Legal & General (LSE: LGEN) has seen its share price plummet recently. It’s now down 29% year-to-date. This has had the effect of pushing up its forward dividend yield to 8.9%.

Normally, yields approaching 10% ring alarm bells. As a likely recession looms, dividend cuts can never be ruled out. However, I’m less concerned about L&G’s.

In the first half of 2022, it achieved 22% growth in cash generation and 14% growth in capital generation. The company remains confident in its ability to grow cash and capital faster than its dividend commitment.

This confidence is backed up by a number of growth drivers, including ageing demographics. As populations live longer, so too must their pensions. Organisations are increasingly turning to L&G to help them find solutions to their ongoing pension commitments. At the same time, individuals need to ensure that their retirement funds and other assets can finance longer retirements.

The accelerating share price sell-off is a direct result of the recent turmoil in the bond market. However, despite volatile markets, the group issued a press release to the effect that it hasn’t been forced to sell any gilts or bonds to shore up its capital position.

When markets are in turmoil, I always remember one of Warren Buffett’s classic quotes: “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”. In L&G, I’m seeing such an opportunity and I’ll be buying.

Today, financial institutions are a major driver behind the UK economy. In 2020 alone, the financial services sector contributed £164.8bn to the UK economy. This was nearly 9% of the total economic output that year. 

In this guide, we will look at the top five finance stocks, by market capitalisation, listed in the UK stock market. These premium companies are part of the industry that powers trade in Britain and are worth investor consideration. 

What are finance stocks?

The finance sector encapsulates a range of companies that offer banking services, asset management, insurance, mortgages, accounting services, and credit/debit card facilities. It could also include companies that provide online financial services like global money transfers, currency exchanges, trading platforms, and brokerages. 

Most top finance shares come with hefty dividends and have historically offered steady growth.

[KevelPitch adtype=4578]

Top UK financial stocks of 2022

These UK finance shares are listed in order of the highest market capitalisation. These companies are industry leaders and will give new investors a fair idea of the types of listed finance companies there are. They’re a great starting point for personal research and to figure out if finance stocks are the right pick for your portfolio. 

1.   HSBC Holdings 

This British firm is a fast-expanding, global force in the banking world. It operates in over 60 countries with over 40m registered customers. HSBC Holdings (LSE:HSBA) manages and holds over $15trn in assets and was the world’s sixth-largest bank by total assets and market capitalisation in 2020. 

Established in Hong Kong in 1866, the bank expanded fast in Europe and switched headquarters to London in 1991. But, over the last few decades, Asia and the Middle East witnessed a huge economic boom. And HSBC has now switched its focus back to these regions, to target these booming economies. The banking group is expected to undergo a major restructure in the coming years to split its management of Asian operations to improve strategic focus in the region. 

Historically, the banker has maintained a steady cash flow and is well placed to sustain and grow the current 3.8% dividend yield for the foreseeable future. As an investor, it is worth noting that this finance stock is consistently ranked in the top 5 most valuable banking companies in the world and has cemented its status as a global market mover.

Market cap: 102.26bn
Average daily volume: 32.77m
Headquarters (HQ): London, UK

2. Lloyds Banking Group

The black horse bank is a torchbearer for the British banking sector and has been a leading UK finance stock since 1865. Lloyds Banking (LSE:LLOY) has a rich history and is one of the most recognised finance brands in the country.

Currently, the bank is the leading mortgage lender in the UK and has acquired a growing interest in the real estate sector. Partnering with Barratt Developments, one of the largest property development companies in the UK, the banker has lofty ambitions of acquiring 50,000 plots by 2030. 

Even though analysts predict a slowdown in the housing market, the move is seen as a potential cash cow and could make the banker a top real estate developer in the country. The Office of National Statistics estimates that the UK population could hit 71m by 2045. This growth is a strong positive for this financial company’s future revenue.

Market cap: 30.8bn
Average daily volume:147.33m
HQ: London, UK 

3. Prudential

Insurance giant Prudential (LSE: PRU) is another company on this list with a huge and expanding Asian presence. In 2021, the group offloaded its operations in the US and chose to focus solely on emerging markets in Africa and Asia. Given the low insurance penetration in these regions and the growing earning potential of the population, the board expects the demand for insurance services to explode. 

Even in developed countries like Mainland China, the estimated life insurance penetration stands at just 2.3%. Other densely populated, developing countries like Indonesia, Singapore, India and Malaysia have an insurance penetration rate of 1.4%, 7.6%, 3.2% and 4% respectively. This gives Prudential a large target customer and asset base. And Prudential is already among the top three insurance providers in all these regions. 

This strategy could prove fruitful for this finance stock if the company manages to market its product effectively.

Market cap: 27.3bn
Average daily volume: 7.78m
HQ: Newark, New Jersey, US

4. Barclays

This banking group established in the 1800s has grown to become one of the most recognised finance brands in the world. Barclays (LSE:BARC) offers personal and corporate banking services, consumer lending, cards, financial advice, and risk management services.

The bank has a strong digital presence with over 10m registered users on its app and over 3bn logins. The group also recently adopted a ‘Buy Now, Pay Later’ program that allows customers to pay for goods in smaller instalments or defer payments. The bank has partnered with e-commerce giant Amazon to roll out staggered payments for orders over £100. This could bring in a lot of younger customers to the bank, maximising long-term customer relationships. 

The innovation-first strategy could give this finance stock a big boost over the long term as more young consumers look for easy banking solutions.

Market cap: 26.18bn
Average daily volume: 53.54m
HQ: London, UK

5. NatWest Group

Another traditional banker with a strong digital presence, NatWest Group (LSE: NWG) is a streamlined cash machine with a strong dividend yield. As the largest business bank in the UK, Natwest has 19m registered customers ranging from small businesses to large multinational corporations. 

The group used the pandemic downtime to restructure the business to improve profit margins. This allowed the company to hit its cost reduction targets, cutting 4% of its operational costs. NatWest also has a robust shareholder returns policy, rolling out a £3.8bn payback. The financial company also announced a minimum of £1bn in dividends each year to 2023 given strong projected cash flows. 

For the environmentally-conscious investors, NatWest is looking to provide £100bn of climate and sustainable funding and financing to businesses by 2025.

Market cap: 22.97bn
Average daily volume: 16.48m
HQ: London, UK

Are finance stocks right for you?

While investing in stable companies with a steady cash flow is an attractive option, finance stocks may not be for everyone. There are risks to consider, especially in a turbulent economic climate. 

When an economy is struggling with inflation, interest rate hikes are a common reaction from central banks. This could put people off borrowing, which would affect most financial stocks.

But an interest rate hike also means banking shares earn more with small or no decrease in margins. And traditionally, finance stocks have been excellent portfolio builders because of the higher-than-average dividends and high trading volume of stocks in the sector. 

Positive shareholder interest over time leads to substantial share price increases. And both in the UK and overseas, large banking and finance stocks have traditionally been great long-term wealth generators. And a progressive investment plan and smartly reinvesting dividends could be a great way to maximise long-term gains in the market, especially with dividend-heavy finance shares. 

Although there are no guaranteed gains, here at The Motley Fool, we preach a long-term investment strategy and encourage readers to do their own research before investing. And finance stocks are great indicators of the larger economic climate. 

If you think UK finance stocks are the right fit for your portfolio, this is a great starting point to evaluate what companies in the financial sector have to offer investors today.  

[KevelPitch adtype=151]

Here are two Footsie stocks I consider to be well positioned to capitalise on these trends.

Prudential

The Prudential (LSE: PRU) share price has struggled to sustain momentum since losing its UK and European businesses in October 2019 due to the company’s demerger from fellow FTSE 100 constituent M&G.

After spinning off its remaining US operations in 2021, the insurer now exclusively focuses on 15 Asian and eight African countries. It currently provides 18.6m customers with savings, health and protection solutions.

The transition came at a difficult time. Hindered by China’s ‘zero Covid’ policy and ongoing border closures between Hong Kong and the mainland, Prudential’s Hong Kong sales collapsed 27% in FY21. However, aggregated 16% sales growth in other jurisdictions did offset this.

Stringent coronavirus regulations remain a headwind, but the company’s long-term prospects look good to me. After all, the market is massive. Asia’s health and protection gap is estimated to be $1.8trn and over 80% of the Asian population has no insurance cover.

Prudential doesn’t lack ambition — it’s developing capacity to serve 50m customers by 2025. New Asia-based CEO Anil Wadhwani will spearhead these efforts from February next year.

Despite recent wobbles, untapped demand in the company’s key locations makes this FTSE 100 stock a tantalising investment prospect. I’d buy.

Airtel Africa

The Airtel Africa (LSE: AAF) share price has enjoyed substantial 81% growth over 52 weeks, although progress has come to a standstill in 2022. This company provides telecommunications and mobile money services in 14 sub-Saharan African countries.

A recent entrant in the FTSE 100 index, Airtel Africa boasts 128.4m mobile subscribers and 46.7m data subscribers to its name.

The business performed well across all of its regions in FY22. Indeed, the latest results marked an impressive 17 quarters of double-digit revenue and EBITDA growth up to 31 March.

Although the market penetration for mobile services in Africa is low, the company faces stiff competition for market share. For instance, Vodafone‘s mobile money service, M-PESA, is Africa’s largest fintech platform with over 51m customers. This is almost double Airtel Africa’s 26.2m subscribers for its equivalent service.

However, I do like the stock’s low price-to-earnings ratio, which is just above 10. The 3% dividend yield is handy, too. With strong brand recognition in the continent and a chunky market to take advantage of, Airtel Africa shares are a good buy for me provided the company can keep pace with its competitors.

FTSE 100 shares for the future

Emerging markets have risks and rewards. Political instability and volatile currencies can be stacked against faster economic growth anticipated in the developing world.

I believe investing in FTSE 100 shares with a strong presence in emerging economies, such as Prudential and Airtel Africa, adds important diversification to my portfolio as well as the prospect of competitive returns in the years to come.

But after 170 years of being a trusted name in the insurance business, why has Prudential fallen out of favour with investors? I think there’s one key reason.

It all stems from the demerger of of the firm’s asset management arm, resulting in the creation of M&G. That happened in late 2019. Then Covid-19 arrived, and the entire financial sector was hammered. Banks and insurance companies suffered a big slump again.

New focus

The new Prudential changed its focus after the split, going for life insurance and financial services business in developing economies.

So investors were faced with a new version of Prudential, substantially different from the venerable one of old. The new Pru was adopting an almost certainly riskier focus.

Then, after the pandemic finally started to recede, the world’s economies were hit by a seriously deteriorating outlook. Oh, and there’s a war going on now, with fallout hitting developing countries too.

They’re not the biggest customers for insurance products in the first place. The hope is that, as they emerge and grow further, that will change. But a global economic squeeze is hardly going to help in that direction.

Forecast valuation

So, after that string of woes, who’d buy Prudential shares now? Well, I think I would. Even with the uncertainty, analysts are still upbeat about the Pru in 2022. Forecasts put the shares on a potential price-to-earnings (P/E) ratio of around 11.5.

I don’t see that as too stretching, even if it might not suggest a no-brainer buy in itself. But with analysts expecting a couple of years of rising earnings, we could see the P/E drop to less than 8.5 by 2024.

A couple of months ago, I was tempted to buy. But I found something I liked better for my money at the time. And I do already have an interest in the sector in my Aviva shares.

But the share price has fallen further since then. And those forecasts do look enticing. I do have to remind myself of one thing, though. Forecasts are often very unreliable. And the current global outlook probably makes the forecasting art especially tricky right now.

Wait for results?

First-half results, the first under new chief executive Anil Wadhwani, could be telling. They’re not due until 11 August, so I wonder if I might miss a buying opportunity if I wait. But then, I’ve never tried to time my purchases anyway.

The other thing that increases my hesitation is the large number of alternative buys out there now, many of which I see as super cheap. I do like the insurance business as an investment, but I wonder if topping up on Aviva might be better.

I may well buy Prudential shares before too much longer. But I think I will wait for those H1 figures first.

Financial services business

As a quick reminder, Prudential is an insurance provider that also sells other financial services products. Its roots stretch back over 170 years.

So what’s been happening with the Prudential share price? Well, as I write, the shares are trading for 1,015p. At this time last year, the shares were trading for 1,515p, which is a 33% decrease over a 12-month period.

I believe the Prudential share price has come under pressure from its demerger from fellow FTSE 100 incumbent M&G. In addition to this, the shares have also suffered due to the effects of the pandemic in the past two years. More recently, the financial sector has come under pressure due to macroeconomic headwinds such as soaring inflation worldwide.

A FTSE 100 stock with risks

Prudential’s restructure and renewed focus since the demerger could be a risky move, in my opinion, and one that could affect performance and investment viability moving forward.

It has decided to focus on developing countries and economies from a financial services and life insurance perspective. The uptake in such economies, of life insurance policies especially, is relatively low. In the current economic climate, it could be faced with volatile markets and performance could be affected. This could in turn, affect performance and investment viability.

The bull case

As much as there is a shorter-term risk to Prudential’s new focus mentioned above, I sense there is an element of excitement too. For example, there is a consensus that the Asian life insurance market could be worth a hefty trillion dollars. If Prudential were able to capture a slice of that pie, it could boost performance and returns in the longer term.

What about Prudential shares currently? Due to the share price drop, they look good value for money on a price-to-earnings ratio of just 15. The FTSE 100 average ratio is also 15.

Prudential’s history and track record of performance is also a positive factor for me. I do understand that the past is not a guarantee of the future, however. The fact it has operated for over 170 years is no small feat. It has consistently managed to grow, perform, and navigate tough times such as geopolitical issues like world wars and recessions. This tells me it could arrive on the other side of current issues in a decent position.

A FTSE 100 stock I’d buy

I would add Prudential shares to my holdings at current levels. The shares look good value for money, especially since they have been fallen in recent times.

My investment mantra is to buy and hold for the long term. This is why Prudential shares could fit well into my holdings.

I am buoyed by Prudential’s track record and despite the short-term challenges ahead, it could see performance boosted significantly. This would be based on its ability to capture emerging economies market share in the longer-term future ahead.

The price has been weak since the demerger of M&G in October 2019. With the timing, though, it’s hard to tell how much contribution that made on top of the pandemic hammering suffered by the financial sector overall.

Restructured company

The subsequent spin-off of US-focused Jackson Life has left Prudential focused solely on Asian and African markets. It did lead to a big hit to 2021 full-year figures, mind. For 2021, the company recorded an IFRS loss of $2.8bn, after the write-down of Jackson to fair value.

Still, adjusted operating profit from continuing operations increased by 16% at constant exchange rates. And the Pru announced a full-year dividend of 17 cents per share (or 13.7p at today’s exchange rates).

That’s a yield of only about 1.4% on the current Prudential share price. But it’s in line with past yields, and the company expects it to grow in line with operating surplus.

New Prudential focus

The new focus on developing economies looks a bit double-edged to me, at least in the current climate. In the long term, targeting life insurance and other financial products at the growing wealth of the world’s developing countries looks like a potentially profitable business. Saturation of these markets is still very low, with relatively little life insurance uptake.

But in the short term, China is suffering from a new surge in Covid-19 and is increasingly locking down. In 2021, Prudential told us that “new business levels in Hong Kong remained impacted by the continuing Mainland China border closure.”

I do think the new Prudential focus has drawn the company away, to some extent, from the old feeling that it’s boring but safe. Those are two things I’ve long admired, and I think it’s had an impact on the Prudential share price.

No longer dull?

But dare I utter a word that I never thought I’d say in the context of Prudential? I think the Pru’s long-term outlook might now be bordering on exciting.

Some estimates suggest around 80% of the folk in Asia do not have insurance cover, and that the market could be worth well in excess of a trillion dollars. Getting even a small slice of that business could generate healthy profits in the coming decades.

Prudential share price risks

I expect continued Prudential share price weakness for the rest of 2022, possibly even beyond, and that’s due to ongoing risk.

The company has given us a detailed breakdown of the risks it faces. And the main ones it sees essentially boil down to Covid-19, economic conditions, and geopolitical risks. No surprises there.

These are the most uncertain world economic times I can remember, for sure. But I’d buy Prudential for the long term.

Monster dividend yield

Based on the current consensus among analysts, insurer and asset manager M&G (LSE: MNG) offers a stonking forecast dividend yield of 8.9% for FY22. That’s one of the biggest in the FTSE 100. It’s also well over double the yield generated by the index as a whole.

Of course, the question that any dividend hunter has to ask is how sustainable the bi-annual payments actually are. On this front, I think investors can sleep safely (for now). 

The FTSE 100 member’s recent set of full-year results were certainly well received. Although adjusted operating profit dipped from £788m to £721m, the firm was able to confirm that it hit all its commitments since demerging from giant Prudential.

These included total capital generation of £2.8bn in two years, “well ahead” of the £2.2bn target set for the end of 2022. On top of this, the company also hit its costs savings target of £145m one year ahead of schedule. 

As a result of this, M&G announced it would be returning £500m back to holders via a share buyback. No wonder the share price jumped on the day. 

Decent outlook

I think this form could continue in 2022. Through a combination of acquisitions and product launches, the £5.5bn-cap is expanding its services in the UK and Europe. A resolution to the conflict in Ukraine and a full post-pandemic recovery could also see more savers’ money finding its way to the company.

Looking further ahead, M&G stands to benefit from an ageing population that’s realising how insufficient the State Pension might be for their desired lifestyle on retirement.

Risks to consider

Naturally, I’d be a complete fool (rather than a Fool) if I didn’t consider the potential risks here.

Unsurprisingly, there’s no guarantee that dividends will always be paid. The global pandemic, while a once-in-a-century event, showed us that the income stream is usually one of the first things to be sacrificed in an effort to shore up cash. As far as M&G is concerned, it’s worth mentioning that profit is expected to cover the FY22 payout just 1.1 times. That’s already rather low.

Away from the dividends, I would also need to be comfortable knowing that M&G’s share price performance will likely be heavily correlated with the health of the UK economy. That’s not necessarily an issue for long-term investors like myself. However, knowing that the stock is still 6% below where it stood when M&G was listed in 2019 is a sober reminder that my capital can fall as well as rise in value.

Cheap FTSE 100 stock

Of course, investors might argue that a lot of risks are already in the price. M&G shares change hands at just 10 times forecast earnings. That looks pretty reasonable to me. Yes, there are similar companies trading on even cheaper valuations in the UK market. However, the dividend stream isn’t quite so big.

Overall, I consider this a good candidate if I was looking to build a diversified, income-focused portfolio.  

The equities have been falling even though their underlying businesses continue to trade in line with management projections.

However, I should make it clear that while it looks as if these companies are trading in line with expectations today, the world is currently going through a period of significant economic stress.

This means these projections could be unreliable. The world could change at a moment’s notice.

If there is a substantial change in the economic environment, these companies may not meet their expectations over the next few years. We can only go on what we know at the moment.

Even after taking these risks into account, I think there are plenty of corporations in the FTSE 100 I would like to buy for my portfolio considering their competitive advantages.

Here are two companies I would acquire for my portfolio right now.

FTSE 100 growth stock

The first on my list is the Asia-focused life insurance and financial services enterprise Prudential (LSE: PRU). Shares in this company have plunged in value over the past couple of months.

Last year, the stock traded as high as 1,600p per share. At the time of writing, the stock is changing hands at around 1,000p per share. That is a decline of around 40% in a couple of months.

Despite this performance, the stock is fundamentally strong.

After the 2019 spin-off of M&G and the subsequent demerger with US-focused Jackson Life, the business’s attention is now on Africa and Asia. Unfortunately, the corporation is having to deal with some extra costs as a result of this translation. Following the Jackson deal, the firm had to book a negative fair value adjustment of $8.3bn (£6.3bn).

Still, there is no denying that the firm has huge growth potential. An estimated 80% of the population of Asia is still without insurance cover. The market is worth an estimated $1.8trn.

Investing for growth

To capitalise on this potential, the group has raised $2.4bn from investors. Most of this has been used to reinforce its balance sheet, which may put it in a better position to grow in the years ahead.

In the near-term, growth could be subdued. Eight markets in Asia and its Africa business delivered double-digit annual premium equivalent (APE) sales growth last year. However, its biggest market, Hong Kong, was hit by the ongoing closure of its border with mainland China. As a result, overall sales declined.

The key risk the company will face going forward are further border closures. This market is also incredibly competitive. There is no guarantee Prudential will be able to match its peers on price in this huge market.

Despite these challenges, I think the market’s opinion of the business today is far too negative.

That is why I would take advantage of recent declines and acquire the FTSE 100 company for my portfolio considering its position in the vast Asian financial services market.

Marketing development

WPP (LSE: WPP) is a company investors love to hate. The enterprise was one of the most sought-after stocks in the FTSE 100 until its CEO and founder, Sir Martin Sorrell, left on fairly poor terms several years ago.

Since then, the group has been in recovery mode. It has sold off non-core divisions, reduced debt and made new investments in key growth areas such as digital advertising.

Unfortunately, while the company was in the middle middle of its transformation programme, the coronavirus started to impact the global economy.

As the pandemic ravaged the global economy, businesses pulled their advertising spending budgets. This had a significant impact on the advertising and marketing group.

The good news is, the company is now back on track.

FTSE 100 company recovery

According to its latest results release, revenue increased 13% on a like-for-like basis in 2021. The group also returned a profit after losing money in 2020. As profits and sales have recovered, the company has started returning cash to investors.

Last year, it returned £1bn, and further cash returns seem likely as the company returns to growth.

It is already spending a lot of money repurchasing shares, which should increase earnings per share and the firm’s valuation in the long run. That is without taking into account its dividend yield. At the time of writing, the stock supports a dividend yield of around 3%.

That said, this is a highly competitive market. One of the reasons why WPP fell behind in the first place is that it was losing share to American technology giants. These companies have only become bigger over the past couple of years.

Competitive environment

That means the FTSE 100 group has its work cut out to maintain market share in this incredibly competitive environment.

As inflation increases, companies may also revisit their marketing budgets and cut spending in order to reduce costs.

These are some of the biggest challenges the group may face as we advance, although they are not the only headwinds that could hit growth.

However, despite these risks and challenges, I think the company looks attractive as an FTSE 100 growth and income play.

As the corporation returns to growth and capitalises on its core strengths, I think the enterprise can continue to return cash to investors and will make a great addition to my portfolio.

While there’s no guarantee that the Footsie will continue to outperform the S&P 500 going forward, I have a bullish view on a lot of UK shares right now. With that in mind, here’s a look at two British stocks I’d buy today.

A FTSE 100 company with long-term growth potential

First up is FTSE 100 company Prudential (LSE: PRU). It’s a leading insurance company that’s now focused predominantly on Asian and African markets. This stock looks quite cheap at the moment. Currently, it has a forward-looking P/E ratio of just 14.

Prudential’s pivot towards Asia and Africa appears to be paying off. For the first half of 2021, for example, adjusted operating profit from continuing operations jumped 19% at constant currency to $1,571m.

Looking ahead, I see considerable growth potential here. Asia and Africa are untapped markets when it comes to savings and insurance solutions. Prudential believes that if it can execute its strategy successfully, it can achieve long-term double-digit growth in embedded value per share.

One issue that investors should be aware of with Prudential is that CEO Mike Wells recently announced his retirement. Wells has been instrumental in pivoting the company towards higher-growth markets, so his retirement adds a bit of uncertainty. This doesn’t concern me too much, however, as I’d expect the board to find a suitable replacement.

It’s worth pointing out that a number of brokers are quite bullish on PRU right now. Recently, Goldman Sachs initiated coverage of the stock with a ‘buy’ rating and target price of 1,761p. Meanwhile, Jefferies recently raised its target price to 1,800p from 1,750p. This reinforces my view that there’s a lot of investment appeal here at present.

A FTSE 250 star at the heart of a powerful trend 

Another UK stock I like the look of right now is Softcat (LSE: SCT), which is a member of the FTSE 250 index. It provides IT solutions to businesses and public sector organisations across the UK. This stock has had a significant pullback recently and now offers more value than it did in the past.

SCT lies at the heart of one of the most dominant trends on the planet today and that’s digital transformation. All over the UK, businesses and government organisations are scrambling to get up-to-speed digitally. They’re moving their operations to the cloud, they’re investing in cybersecurity software, and they’re seeking out data analytics solutions. This is benefiting Softcat, which can provide all of these things for customers, and much more.

A look at Softcat’s financials reveals that this is a high-quality company. Not only has the group generated strong revenue growth over the last five years (72%), but it has also generated high returns on capital employed. Additionally, it has raised its dividend significantly over the period. Overall, the financials here are very impressive, to my mind.

The valuation here does add a little bit of risk. At present, SCT has a forward-looking P/E ratio of about 32. This doesn’t leave a huge margin of safety. If growth slows down, the stock could underperform.

I’d be comfortable buying the stock at that valuation, however. To my mind, this growth stock deserves a premium valuation.