These 5 Banks Could Double In Value!

Although it’s been a tough period for the sector, these five banks could have a great future.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

2014 has been a major disappointment for the banking sector. Indeed, the five major banks; Barclays (LSE: BARC), Lloyds (LSE: LLOY), RBS (LSE: RBS), HSBC (LSE: HSBC) and Standard Chartered (LSE: STAN) have all endured a difficult year-to-date. In fact, until today’s spike in RBS’s share price, all five banks had underperformed the FTSE 100. Indeed, what makes the performance even more disappointing is the fact that the FTSE 100 has gained just 1% so far this year.

However, the future is unlikely to be anything like the past for the five major UK listed banks. Moreover, all five banks have the potential to double in value. Here’s why.

Profitability Is Improving

A key problem for the banks since the start of the credit crunch has been asset write-downs. This has hit profits hard, since write-downs are a minus figure on the income statement, and has meant that RBS and Lloyds, for example, have failed to make a net profit since the credit crunch began. However, as RBS’s results today show, the banks are not only writing down assets to a far smaller extent than previously, they are actually starting to write them back up. The reason for this, to a large extent, is an improving economy that makes fewer loans turn bad. As such, banks are set to not only return to profitability (in the case of RBS and Lloyds), but grow them significantly, too.

Growth Is Making A Comeback

Indeed, bottom-line growth looks set to be strong for all five banks. For example, HSBC is forecast to increase earnings per share (EPS) by 9% in each of the next two years, while Barclays is set to increase its profit by 39% this year and by 23% next year. Those are hugely impressive growth numbers and show that the banks really are making a strong comeback.

Super Value

A key reason why the banks could double in value is that they are priced at incredibly low levels at present. Their price to book values are staggeringly low and appear to factor in vast write-downs which, judging by the pace of growth of the UK and world economies, is unlikely to take place. For instance, the price to book ratios of the five banks range from just 0.4 for RBS to 1.4 for Lloyds, with Standard Chartered, Barclays and HSBC all having price to book ratios of 0.65. All of these figures are extremely low and highlight the fact that the five banks are a steal at current prices.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens owns shares of Barclays, HSBC Holdings, Lloyds Banking Group and Royal Bank of Scotland Group. The Motley Fool owns shares of Standard Chartered.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »