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Why Prudential Financial Inc (PRU) Is Telling Me to Buy Aviva Plc (ADR) (AV)

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LONDON — Prudential Financial Inc (NYSE:PRU) (LSE:PRU) is the flavor of the month.

Its share price hopped and skipped almost 10% on Wednesday and jumped another 5% on Thursday morning. Which is great news for me, because I bought this FTSE 100-listed insurance behemoth three years ago, and it has doubled in value since then.

I shouldn’t brag about my stock-picking abilities, because around the same time I sank an even bigger sum into its troubled rival Aviva Plc (ADR) (LSE:AV) (NYSE:AV). It is down 18% over three years, wiping out a good chunk of my Prudential Financial Inc (NYSE:PRU) (LSE:PRU) profits.

We have one winner, one loser. The question is, which one should you buy next?

Mob rule
Let’s take the good news first. Prudential Financial Inc (NYSE:PRU) (LSE:PRU) rocks.

But it wasn’t always that way. When I bought the stock, chief executive Tidjane Thiam had just made a complete Horlicks of his 36 billion-pound attempt to buy AIA Group, the Asian arm of American International Group, and was nearly pitchforked out by upset shareholders.

I always thought the takeover was risky, and was glad it fell through. The market thought differently, and handed me a great buying opportunity. Who doesn’t like buying good companies on bad news?

Since then, all the headlines have been happy. Indeed, Prudential Financial Inc (NYSE:PRU) (LSE:PRU)’s latest full-year results thrashed the sector generally, and Aviva Plc (ADR) (LSE:AV) (NYSE:AV) in particular.

Highlights included a 25% increase in operating profits to 2.53 billion pounds, of which nearly 1 billion pounds come from its target Asian market, notably Indonesia, Singapore and Malaysia.

Asia now contributes more cash to Prudential Financial Inc (NYSE:PRU) (LSE:PRU) than any other region, a mighty 341 million pounds in 2012, up from 40 million pounds just three years earlier. Prudential did pretty well in the U.S. as well, adding 200,000 new policies.

The firm has also continued to plump up its financial cushion, which now represents three times its solvency requirements. Best of all, Prudential whacked up its dividend by a whopping 16%.

Strong stuff
The turbulent Indian life-insurance market, challenging conditions in China, uncertainties over EU Solvency II requirements and the wider economic malaise are all worries, but given the jubilant market response to Prudential’s progress, they are clearly minor concerns.

This is a company that is even throwing off cash in the U.K. Is there anything Prudential Financial Inc (NYSE:PRU) (LSE:PRU) can’t do? No wonder analysts are nailing it has a strong buy. I decided that three years ago.

Lifeless
And so to Prudential’s whey-faced rival, poor, sickly Aviva Plc (ADR) (LSE:AV) (NYSE:AV).

I’ve just checked Aviva’s past share-price performance, and it has pointy-down red arrows all over it.

Aviva has “red-arrowed” over five, three, two, one years… just about every timescale you can name.

The price is down 14% over the past 12 months, against a 10% rise for the FTSE 100 as a whole. The group’s market cap has sunk to a lowly 9.5 billion pounds, against 30 billion pounds for the chubby-cheeked Pru. When Aviva announced its results last week, its share price fell 13% in moments. Bleh.

Just about everything Prudential Financial Inc (NYSE:PRU) (LSE:PRU) has done right, Aviva Plc (ADR) (LSE:AV) (NYSE:AV) has done wrong.

Aviva reported a pre-tax loss of 3.1 billion pounds, down from a profit of 60 million pounds last year, although in mitigation, that was mostly down to a 3.3 billion pounds writedown in the value of its disposed U.S. business.

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