LONDON -- As a general rule, I prefer investing in companies whose share price has fallen rather than risen, because there's a better chance of bagging a bargain.

That strategy isn't foolproof. Two years ago, I chose struggling insurer Aviva over high-flying Legal & General (LGEN -0.50%) and got it badly wrong. Aviva has continue to flounder, Legal & General has soared. It is up 62% over the past 12 months alone. But can it continue this surge?

I've seen at least two brokers claiming Legal & General remains undervalued, suggesting further fun is on the way. Legal & General is rightly feeling chipper having just posted "record assets, sales and cash generation" during the first quarter. New business sales shot up an impressive 28% to 555 million pounds, with its U.K. and U.S. businesses both performing strongly, while total assets under management grew 9% to to 441 billion pounds. Annuity premiums also grew strongly, as did group protection sales, which rose a mighty 67% in what is a notoriously sluggish market.

Strictly Legal
Group chief executive Nigel Wilson hailed the group's cash, earnings and dividend growth, and said the outlook for the business was "strong," depending on broader economic growth and international credit expansion. Legal & General may lack the global reach of rival insurer Prudential, but it is making progress, with overseas assets up 21% to 52 billion pounds. Wilson hopes to take advantage of the globalization of investment markets, including structural trends such as ageing populations, and the greater need for people to save for retirement rather than relying on the cash-strapped state.

Legal & General has also benefited from the growing shift to low-cost passive index-tracking funds, its specialism, with gross fund flows up 40% in the first quarter. I would expect that trend to continue, as the U.K. financial advisory overhaul of the Retail Distribution Review continues to grind away at excessive fund management charges.

Value play?
So is Legal & General still undervalued? Forecast earnings per share (EPS) growth of a solid 9% this year and 7% next look decent rather than dynamite. A PEG ratio of 1.1 is fine, but it doesn't blow me away. More impressively, Legal & General trades at just 13 times earnings, below the FTSE 100 average of 14.3 times earnings, and the 15 times earnings generally seen as representing fair value. It is also cheaper than that other high-flying insurer, Prudential, which trades at 15.3 times earnings.

So yes, you could say Legal & General is still undervalued, although not spectacularly so. Deutsche Bank calls it a "Buy," but its 1.90-pound target is only 10 pence above current market price. While Legal & General can still be called undervalued, it's by a shrinking amount, which is hardly surprising given recent spectacular growth. But on a yield of a punchy 4.2%, covered 1.8 times, it still looks like a strong long-term buy to me.

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