HSBC Holdings plc: Top Stock Or Not?

Is HSBC Holdings plc (LON: HSBA) a potential winner? Or, should it be avoided?

| 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.

Investors in HSBC (LSE: HSBA) (NYSE: HSBC.US) have experienced a highly challenging year, with shares in the emerging market focused bank being down 14% at the time of writing. This compares unfavourably with the FTSE 100, which is up almost 3% over the same time period.

Indeed, the last three months have seen the gap between the two widen, as HSBC has suffered from wider doubts surrounding the sustainability of the emerging market growth story. This, though, could turn out to be a positive for the company — here’s why.

Growth Potential

Although a considerable exposure to the developing world has undoubtedly hurt HSBC in recent months, in the long run it could prove to be a major boost for the company. That’s because countries such as China are gradually moving away from a capital investment-led period of growth towards consumer-led growth. This means that vast capital projects such as building roads, railways and other infrastructure projects may not be the main drivers of economic expansion in future. Instead, consumer purchases looks set to take the lead.

HSBCThis could be great news for HSBC, as consumers need credit in the form of credit cards, loans and mortgages. Furthermore, as economies develop, businesses may require access to capital in the form of loans from banks such as HSBC. All of which is good news for the banking sector, with there being clear growth potential in the developing world for HSBC and its peers to tap into.

Cost Cutting

While there appears to be potential for HSBC to increase revenue over the medium to long term, management is also focused on reducing costs, too. For instance, since current CEO Stuart Gulliver took over the reins three years ago there have been 40,000 job cuts, 60 businesses have been sold off, with the result being a fall in operating expenses of around $5 billion from 2012 to 2013. This ruthless approach to costs should help to put HSBC on a firm financial footing in which to exploit the growth potential of the developing (and developed) world.

Looking Ahead

Trading on a price to earnings (P/E) ratio of 10.7, HSBC appears to offer good value for money when compared to the FTSE 100’s P/E of 13.2. Furthermore, with significant growth potential on offer in the emerging world and a reduced cost base, HSBC appears to be a top stock that has a lot to offer investors over the medium to long term.

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 owns shares in HSBC.

More on Investing Articles

Investing Articles

2 mouthwatering FTSE growth stocks I’d buy and hold for 10 years

Growth stocks purchased today could be the gateway to many years of capital growth and returns. Here are two picks…

Read more »

Investing Articles

Can the IAG share price really be as dirt cheap as it looks?

While most shares have recovered since the Covid days, the IAG share price is staying stuck to rock bottom. Surely…

Read more »

Investing Articles

BAE Systems shares are flying! Have I missed the boat?

Sumayya Mansoor looks into whether or not BAE Systems shares are still a good buy for her portfolio after the…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

1 heavyweight FTSE 100 share I’d buy as London retakes its crown

Some Footsie firms are extremely large, but that doesn't mean they couldn't get even bigger. Here's one such FTSE 100…

Read more »

Investing Articles

I’d buy 5,127 National Grid shares to generate £250 of monthly passive income

With a dividend yield of 6.5%, Muhammad Cheema takes a look at how National Grid shares can generate a healthy…

Read more »

Investing Articles

The FTSE 100’s newest member looks like a no-brainer to me!

This Fool explains why she sees the newest member of the FTSE 100 as a great opportunity after its recent…

Read more »

Investing Articles

Empty Stocks and Shares ISA? Here’s how I’d start earning a second income from scratch

Like the thought of earning extra cash tax free? Our writer explains what he'd do to begin earning passive income…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

No savings at 25? I’d start by investing £3k in these 3 red-hot FTSE 100 shares

Harvey Jones thinks these three FTSE 100 stocks would be a great way to kickstart a portfolio of UK shares.…

Read more »