I’m always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market has been overheating.
So right now I’m analysing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today’s uncertain economy.
Today I’m looking at the world’s local bank, HSBC (LSE: HSBA) (NYSE: HBC.US) to determine whether the shares are still safe to buy at 734p.
So, how’s business going?
During the first quarter of this year, HSBC’s profit grew at a record pace, cementing the banks position as one of the most profitable and well-capitalised banks in the world.
In particular, HSBC reported that first quarter profit expanded 95% to $8.4bn year-on-year and group revenues expanded 14%.
Furthermore, the bank’s capital position continued to improve and HSBC’s tier 1 capital ratio increased from 12.3% to 12.7% over the three month period.
Meanwhile, losses from loan impairments halved to $1.2bn, from $2.4bn.
Still, like the rest of the financial sector, HSBC is facing regulatory uncertainty. However, the company is working hard to simplify and de-risk the group. For example, management has already announced nine transactions to sell-off non-core businesses so far this year.
Expected growth
Thanks to its market leading position in several key emerging markets around the world, HSBC’s earnings are expanding rapidly and City analysts expect this growth to continue over the next two years. City forecasts currently predict earnings of 65p per share for this year (37% growth) and 70p for 2014.
Shareholder returns
Unlike the majority of its peers in the banking sector, HSBC offers investors a dividend. Indeed, HSBC currently offers investors a dividend yield of 4.2%, which is more fitting of a utility company than a bank — HSBC’s banking sector peers currently offer an average dividend yield of 3.1%.
Moreover, City analysts expect the bank to increase its payout by 12% next year, indicating that HSBC will offer a dividend yield of 4.7% for 2013.
Valuation
Surprisingly, despite HSBC’s high rate of growth and the company’s dividend income, the bank still trades at a discount to its peers. HSBC currently trades at a historic P/E of 14.7, while its peers trade on an average historic P/E of around 19.
As a matter of fact, based the company’s low P/E ratio and analysts expectations for growth, I believe that HSBC trades at a PEG ratio of around 0.4, indicating that the company offers growth at a reasonable price.
Foolish summary
All in all, based on the firm’s rate of growth, dividend income and current discount to sector peers, I believe that HSBC still looks safe to buy at 734p.
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In the meantime, please stay tuned for my next FTSE 100 verdict
> Rupert does not own any share mentioned in this article.
