Today’s market conditions are creating some great buying opportunities for long-term investors, in my view.
Three examples from my own buy list are HSBC Holdings (LSE: HSBA), 3i Group (LSE: III) and Aberdeen Asset Management (LSE: ADN). I believe all three offer an attractive combination of value and income at today’s prices, and could outperform the market over the next few years.
HSBC Holdings
Shares in HSBC have fallen by 17% this year as concerns have grown about the Chinese economy. Although some caution is justified, I think the sell-off of HSBC stock has been overdone.
The bank’s shares now trade at a 20% discount to book value on a 2015 forecast P/E of just 9.5. HSBC’s prospective yield has risen to 6.6%.
Yet HSBC’s business is not solely dependent on China. What’s more, with a market value of around £100bn and a strong balance sheet, HSBC is likely to be able to ride out any short-term problems.
Indeed, the latest analyst forecasts suggest that HSBC’s earnings per share will actually rise by 12% this year. In my view, the bad news is already in the price.
I rate HSBC as a strong buy for investors seeking value and income.
3i Group
Private investors may not be as familiar with listed private equity firm 3i as with HSBC, but the £4.6bn group is a FTSE 100 member with a decent pedigree.
3i invests in assets such as utility and transportation infrastructure, as well as corporate debt. The firm’s main markets are northern European and the US. Due to the long-term, lumpy nature of the firm’s deals, earnings aren’t always consistent from year to year, but I believe the group offers attractive potential returns for long-term investors.
The shares have come down from a June high of 550p to a more reasonable 480p, which gives a forecast P/E of about 8. A prospective dividend yield of 3.1% is average, but the payout is backed by a strong balance sheet and should be very safe.
3i isn’t a short-term investment, but could prove lucrative over a timeframe of 3-5 years or more.
Aberdeen Asset Management
Like HSBC, asset manager Aberdeen has been a casualty of the emerging market sell off. The firm’s shares are down by 28% so far this year and now trade on less than 10 times forecast earnings for 2015 and 2016.
A second attraction is a prospective yield of more than 6%. Historically, Aberdeen’s dividend has always been generously covered by free cash flow and the firm has no debt, so I’d expect this payout to be maintained. Current forecasts are for an 8% dividend hike this year, and a 6% rise in 2016.
Like HSBC and 3i, Aberdeen Asset Management would pass the Warren Buffett test of being a share I’d be happy to buy if the stock markets were going to be closed for the next ten years.
In addition to an attractive dividend income, I’m confident that each of these firms is likely to deliver decent capital gains over the long term, too.
