Why I’ve Bought Standard Chartered PLC

Standard Chartered PLC (LON:STAN) — the safe haven that turned into a contrarian play.

| 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.

In the raging storm that was the global financial crisis, financial shares such as the banks, the insurers and the brokers were trashed.

Banks such as RBS and Lloyds, which had undertaken ill-timed takeovers and racked up mountains of bad debt, suffered the most.

A safe haven in the storm

One of the few safe havens in the storm was Standard Chartered (LSE: STAN) (NASDAQOTG: SCBFF.US). With a simple focus on emerging and frontier markets, and with little bad debt or exposure to the fractured mortgage market, the company had emerged remarkably unscathed from the financial crisis.

Because of this, while the share prices of many banks were bumping along the bottom, the Standard Chartered share price recovered rapidly after the credit crunch.

But it was also because of this reason that I have until now favoured buying into banks such as Barclays and Lloyds instead. That was simply because, in the reverse logic of the contrarian, you buy into companies whose shares have been hit hardest by the crisis, as the potential for recovery is greater.

However, Standard Chartered has always been on my watchlist, as it is a fundamentally strong company with great growth prospects. But I have been waiting for the moment that the company found itself out of favour with the markets. I think this may be that time.

This is both a growth and a recovery play

The simple numbers bear this out: earlier this year the share price stood at 1,800p; it is now down to 1441p. The P/E ratio is 9, and the dividend yield is 4.1%. This is cheap for a business that continues to grow.

Why has the share price fallen so much? Well, the bank has been tainted by scandal. Firstly, last year there was the Iranian money-laundering scandal. Although the company kept its US banking licence, it was fined a total of £419m. Then this year, the Korean business has suffered a write-off of £650m.

Yet profits in most of Standard Chartered’s markets are growing: in markets from Hong Kong to India and Africa, this company is steadily growing turnover and earnings. Profits, and the dividend yield, are forecast to increase in future years. This is what is you would expect from a bank that is so focused on fast-growing emerging and frontier markets.

Growth in what we used to call the developing world is transitioning from manufacturing to consumers and services. Standard Chartered is benefiting from this new banking boom.

With financials returning to normality, and emerging markets bottoming, I expect Standard Chartered to recover quickly. So I have bought in, and I think you should, too.

Power your portfolio with this share

Standard Chartered is a high-income share that also has great growth prospects. In this way, it combines the best attributes of value and growth shares.

Our experts at the Fool have identified another share that provides a high and rising income, is stable, and also has prospects for growth. We think it could really power your portfolio. Want to learn more? Then simply read our report on “The Motley Fool’s Top Income Share For 2013” — it is available without obligation and completely free.

> Prabhat owns shares in Standard Chartered and Barclays. The Motley Fool owns shares in Standard Chartered.

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.

More on Investing Articles

British Pennies on a Pound Note
Investing Articles

1 penny stock I’d buy today while it is 99p

Ben McPoland highlights Windward (AIM:WNWD), a fast-growing penny stock that could benefit from the artificial intelligence revolution.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This forgotten FTSE 100 gem could be the best bargain on the stock market

The FTSE 100 is full to the brim of high-quality businesses. But this Fool has his eye on this 'forgotten'…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s a FTSE 250 stock I’d put 100% of my money into

If this Fool could buy just one stock from the FTSE 250, Games Workshop would be his choice. Here, he…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

2 reasons Warren Buffett might love this stock, and 1 reason he might avoid it like the plague

Warren Buffett's one of the best stock pickers of all time. But would he approve of Barclays shares? This Fool…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

433 shares in this FTSE 100 dividend superstar could make me £18,803 in annual passive income!

This overlooked FTSE 100 gem has one of the best yields in the index, looks undervalued, and makes me big…

Read more »

Investing Articles

2 under-the-radar investment trusts I’d buy for a new Stocks and Shares ISA

Here are two fantastic trusts that I'd happily snap up today if I were building a Stocks and Shares ISA…

Read more »