Are HSBC Holdings plc, Barratt Developments Plc And 3i Group plc The Cheapest Stocks That Money Can Buy?

Are these 3 stocks cheap enough to warrant purchase right now? HSBC Holdings plc (LON: HSBA), Barratt Developments Plc (LON: BDEV) and 3i Group plc (LON: III)

| More on:

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.

For most people getting a bargain feels good. Just look at the success of £1 shops and no-frills supermarkets, which offer their customers the chance to seemingly obtain a better deal than they would elsewhere.

Of course, the same pattern of behaviour is not quite so evident with shares. Some investors seem to want to buy more of a stock that has become more expensive. Others focus on the ‘bargain basement’ of companies, searching high and low for the cheapest share prices that could be about to soar.

One such company is HSBC (LSE: HSBA). Its status as a ‘bargain basement’ stock is perhaps not the most desirable, but, for long term investors, it seems to be worthy of purchase. That’s because, while the bank is not without risk, the market appears to be focusing too much on potential downsides rather than possible upside.

For example, HSBC’s exposure to the Asian economy is a cause for concern in the short run, since the rate of economic growth in the region may be slowing down. However, in the long run the region holds stunning growth potential as the growing middle class begin to spend more and, crucially, are likely to use credit to do so to a greater extent than at the present time.

This means that a bank such as HSBC is well-placed to benefit from an economic tailwind and, even in the shorter term, its earnings performance is expected to be impressive despite the soft landing of China. In fact, its bottom line is expected to rise by as much as 17% in the current year, which makes its current price to earnings (P/E) ratio of 9.4 seem exceptionally appealing.

Similarly, house builder Barratt (LSE: BDEV) also has a very cheap share price. It currently has a P/E ratio of 12.2 and, while there are concerns surrounding the housing market’s price level, these are unlikely to hurt the company’s strong growth potential over the medium to long term.

That’s because the UK has a fundamental supply/demand imbalance when it comes to housing. Even if the required number of houses were built per year, it would take a very long time to make up for relatively low levels of house building in previous years. As such, demand for Barratt’s product (ie, houses) is due to remain strong in 2016 and beyond. And, with the company’s earnings due to rise at a double-digit rate next year, investor sentiment seems likely to improve in the months and years ahead.

Meanwhile, investment company 3i (LSE: III) may have posted a rise in its share price of 20% in the last year, but it still retains its status as a ‘bargain stock’. That’s because it has a rating of just 7.9, which makes it one of the cheapest stocks on the entire index. And, while its earnings are due to fall by 5% next year, 3i’s business is a rather volatile one in terms of its profitability. Therefore, while a fall in earnings is never welcome, 3i has the potential to bounce back strongly in future years.

In addition, 3i has the scope to rapidly increase dividends despite its bottom line being due to come under pressure. For example, it has a payout ratio of only 27%, which signals that shareholder payouts could more northwards in the long run.

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 3i Group and HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

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 »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »