As the FTSE 100 bounces around all-time highs, it’s becoming difficult for investors to find attractively priced shares.
However, two of the FTSE 100’s largest constituents, HSBC (LSE: HSBA) (NYSE: HSBC.US) and GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US), are currently trading at rock-bottom levels, giving investors an opportunity that’s too good to miss.
Multiple concerns
Both HSBC and Glaxo are trading near 52-week lows for good reason. Glaxo, for example, is currently embroiled in a bribery scandal within China.
Investors are concerned that Glaxo’s problems within China may spread to some of the company’s other markets. There are also rumours that company could be facing an investigation by the Serious Fraud Office here within the UK.
Meanwhile, investors are worried about HSBC’s exposure to Asia, China in particular. With the number of corporate defaults rising nearly every day within China, many analysts are now warning of a regional credit crunch. HSBC is likely to be seriously affected by an Asian credit crunch and damage to the bank could be severe.
Not worried
Nevertheless, HSBC’s management is not worried about the prospect of Chinese credit crunch. Indeed, management has been proactive in reducing the bank’s exposure to risky debt and assets.
Additionally, Glaxo’s underlying business remains strong and the company has a solid pipeline of treatments under development.
Hefty yield
After recent declines, both Glaxo and HSBC offer impressive dividend yields, which you would be hard pressed to find elsewhere.
Indeed, at present levels Glaxo supports a dividend yield of 5%, rising to 5.3% by 2015. The payout is currently covered one-and-a-half times by earnings per share. What’s more, after Glaxo’s recent deal with Novartis, which netted the company £4bn, investors are set for a one-off payout via a B share scheme of 80p per share.
HSBC on the other hand currently offers a 4.8% yield, which is set to hit 5.5% by 2015. At present the payout is covered one-and-a-half times by earnings per share.
Attractive valuation
It’s not just hefty dividend yields that make HSBC and Glaxo attractive, both companies are also trading at attractive valuation multiples.
Glaxo for example currently trades at a historic P/E of 13.8, cheap compared to its biotechnology sector peers, which trade at an average historic P/E of 17. Moreover, HSBC currently trades at a historic P/E of 12.1 and a forward P/E of 11.1 as earnings per share are slated to grow by 10% this year.
City support
Both HSBC and Glaxo have the support of City of London veteran and guru Neil Woodford, who has bought large chunks of the two companies for his new income fund.
And it’s easy to see why, with yields in excess of 5% predicted, both Glaxo and HSBC should have a place in any income portfolio.
