HSBC Holdings plc And Standard Chartered PLC Are Still Cheap: Which Should You Buy?

The Asian sell-off has left Standard Chartered PLC (LON:STAN) and HSBC Holdings plc (LON:HSBA) looking too cheap to ignore, says Roland Head.

| 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.

It’s not often that two high-quality businesses go on sale at bargain prices, but in my view, both Standard Chartered (LSE: STAN) and HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) are too cheap to ignore at their current prices.

Here’s why:

  HSBC Holdings Standard Chartered
2014 forecast earnings per share growth 14.0% 11.2%
2014 forecast P/E ratio 11.0 10.5
2014 forecast yield 5.2% 4.0%

City analysts’ consensus forecasts for both banks suggest that they will deliver double-digit earnings per share (EPS) growth this year, in-line with the FTSE 100 average forecast EPS growth of 12.9%.

However, while the FTSE 100 trades on a forecast P/E of 15.3, HSBC and Standard Chartered are valued much more cheaply, and as a result, offer much higher dividend yields.

Forecasts can be wrong…

hsbcAlthough consensus forecasts (the average of a number of individual analysts’ forecasts) are usually fairly accurate for large companies, they aren’t guaranteed.

However, for more reassurance, we can look at the trailing figures for both banks, which I’ve calculated using their 2013 results:

  • HSBC trades on a trailing P/E ratio of 12.2 and has a trailing dividend yield of 4.8%.
  • Standard Chartered trades on a trailing P/E of 11.7 and has a trailing yield of 3.9%.

In my view, neither of these valuations is pricing in much growth in 2014, giving value-seeking investors a good opportunity to snap up cheap shares in high-quality businesses (remember that the FTSE 100 is currently trading in a trailing P/E of 18.1).

What about other risks?

Both banks have been busy selling non-core parts of their businesses recently.

stanHSBC has sold 63 businesses in the last year, in an attempt to tighten its focus and improve is profitability, while earlier this week press reports suggested that Standard Chartered may soon announce a $700m deal to sell its Hong Kong consumer finance unit, which has historically generated high returns from high-risk unsecured loans.

In both cases, the banks’ timing seems good — some slowdown in Asian growth looks likely, so it’s an appropriate time to boost cash levels and focus on core, lower risk banking activities.

Buy HSBC or Standard Chartered?

I reckon that both banks are a cracking buy at the moment, but analysts are expecting HSBC to increase its dividend by 7.4% in 2014 and by 9.1% in 2015, whereas Standard Chartered is only expected to hike its dividend by 1.2% this year and by 6.7% in 2015.

HSBC’s yield is already higher, and its greater size and capital strength make it a lower-risk bet than Standard Chartered, so if I was buying today, I’d buy HSBC.

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.

Roland owns shares in HSBC Holdings and Standard Chartered. The Motley Fool owns shares in Standard Chartered.

More on Investing Articles

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Taylor Wimpey shares yield a fabulous 6.41%, but is the dividend safe?

Harvey Jones has enjoyed plenty of growth and income after buying Taylor Wimpey shares last year. But is today's high…

Read more »

Yellow number one sitting on blue background
Investing Articles

1 FTSE lithium stock I think could be ready to rocket

Jon Smith explains why the lithium price could be due a rally, and why shares of one related FTSE stock…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
US Stock

This growth stock that Warren Buffett owns just hit 52-week lows. Should I buy?

Jon Smith flags up a high-profile US stock that the great Warren Buffett bought back in 2020 but which has…

Read more »

White female supervisor working at an oil rig
Investing Articles

Could the UK general election be bad news for this FTSE 250 energy producer?

The country is due to vote in the general election on 4 July. Our writer looks at the possible implications…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should we buy cheap FTSE 100 shares now, before it’s too late?

The FTSE 100 is up 5% so far in 2024 and hit an all-time high in May. That means the…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Here’s why I think the Lloyds share price could hit a 5-year high in 2024

It's up 13.5% so far in 2024, and reaching new highs. But where might the Lloyds Bank share price go…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

If I’d put £15k into this FTSE 250 stock in 2008, I’d have over £1.26m today

This multi-billion-pound business has created plenty of millionaires over the last 16 years, but can it repeat this performance?

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

3 dividend shares I’ve bought for the next decade!

I think these UK dividend shares can amplify my long-term passive income, and could even be on track to becoming…

Read more »