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

While Prudential gains ground in Asia, Aviva Plc (ADR) (LSE:AV) (NYSE:AV) is on the run in France, Italy and Spain, thanks to a sharp drop in long-term savings rates. Even foreign-exchange movements are against it, knocking 65 million pounds off its adjusted operating profit, which fell 4.3% to 1.78 billion pounds.

That’s what happens when your luck runs out.

Finally, the one thing still in Aviva’s favor, its 7%-plus yield, went under the knife. The final 2012 dividend was cut by a mighty 44%, leaving the full-year payout down 27%. That wasn’t a nip and tuck, it was an amputation. Hence the share-price punishment.

Buy what?
Prudential rocks, Aviva sucks.

Prudential is cash-rich, has a strong balance sheet and an 11.6% operating margin. It’s Asian strategy isn’t a vague intention, it’s a lucrative fact on the ground.

Aviva is Prudential Financial Inc (NYSE:PRU) (LSE:PRU)’s cash-poor cousin, financially weaker, embarrassed in Europe, strategically confused and overly complex, with a feeble operating margin of just 5.5%. So which stock should you consider? It’s a no-brainer for me: Aviva.

I feel you should consider Aviva Plc (ADR) (LSE:AV) (NYSE:AV) for the same reason I bought Prudential three years ago: The market hates it, and the share price reflects that.

If you’re patient, you might just be buying a bargain. The recent dismal results could be a turning point for Aviva. The bad news is well and truly out there.

But that 3.3 billion-pound U.S. writedown is out of the way. Management is now simplifying the business, slashing costs, reducing debt, and plumping up its capital cushion.

Given the insurer’s problems, Aviva knows it must take aggressive action to restore its fortunes.

Yes, the dividend is down, but it still yields 5.9%, more than double Prudential’s 2.6%. So you should be rewarded for your patience. And you won’t be surprised to hear that Aviva is a lot cheaper, trading at 9.24 times adjusted earnings, while Prudential Financial Inc (NYSE:PRU) (LSE:PRU) is a more fully priced 14.6 times earnings.

Buying great companies on great news is perfectly acceptable thing to do. But buying good companies on terrible news is far better. But you will need to be patient…

The article Why Prudential Is Telling Me to Buy Aviva originally appeared on Fool.com and is written by Harvey Jones.

Harvey Jones holds shares in Aviva and Prudential.

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