Is the HSBC share price the FTSE 100’s best bargain?

The HSBC (LON: HSBC) share price is up 20% over 12 months. But I think it’s still great value, and I’d buy for long-term passive income.

| 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.

I wish I’d bought HSBC Holdings (LSE: HSBA) when it dipped in the first days of the war in Ukraine. The whole financial sector suffered a sharp drop. But since a low on 7 March, the HSBC share price has risen 15%. And even with this latest financial shock, HSBC is up 20% over the past 12 months.

The valuation still looks modest to me. And the bank is paying very attractive dividend yields. So is HSBC the FTSE 100’s best bargain right now? There are risks, but I think it could well be up there. And I’m seriously thinking of buying.

Going on 2021 full-year results, HSBC is on a price-to-earnings (P/E) multiple of 11 with a dividend yield of 3.7%. That’s on the current HSBC share price, and I’d clearly have done better had I bought at the end of 2021. But I still think that’s a bargain buy valuation, providing we see further progress in 2022 and beyond. And I think we will, judging by current forecasts.

Profit growth

The bank itself reckons it will continue to make progress with costs savings in the current year, and the forecasts echo that. The consensus suggests adjusted pre-tax profit should dip slightly, by 4% in the current year, but then rise in the following two years. By 2024, we could be looking at a pre-tax profit figure that’s 20% ahead of 2021.

That might sound like modest progress. But considering the geopolitical unrest we’ve seen, including growing tensions between the US and China, I’d be very happy with it. It suggests a year-end P/E for 2024 of only around nine, based on today’s HSBC share price.

Strong liquidity

Since the banking crisis, attention has been focused mainly on liquidity measures. The result, I reckon, is that our banks are safer and more financially secure today than they’ve been for a good few decades. HSBC was able to boast a common equity tier 1 capital ratio of 15.8% in 2021. That’s way better than any of the targets set by the Bank of England in its stress tests on UK-listed banks.

What’s the risk? The Ukraine conflict has focused financial attention on Russia. And that has, perhaps, drawn our attention away from those long-term trade and political conflicts between China and the US. Those conflicts have shaken a number of Chinese stocks with listings on American stock markets. And anything that hampers global trade has to be bad news for a multinational bank like HSBC.

HSBC share price outlook

Still, even with the risks, I still feel bullish about the HSBC share price. Interest rates are rising across the world, with the Bank of England and the US Federal Reserve both lifting them. That’s bad news for borrowers, but good news for banks.

Those higher rates could help push up HSBC’s profits in the next few years. And with HSBC continuing to “target dividends within our 40% to 55% dividend payout ratio range“, that would feed through to more cash in shareholders’ pockets.

But yes, overall, I think HSBC is one of the FTSE 100’s most attractive shares at the moment. And I might add some to my portfolio.

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.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Why I’m confident Tesco shares can provide a reliable income for investors

This FTSE 100 stalwart generated £2bn of surplus cash last year. Roland Head thinks Tesco shares look like a solid…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

£20,000 in savings? I’d buy 532 shares of this FTSE 100 stock to aim for a £10,100 second income

Stephen Wright thinks an unusually high dividend yield means Unilever shares could be a great opportunity for investors looking to…

Read more »

Investing Articles

Everyone’s talking about AI again! Which FTSE 100 shares can I buy for exposure?

Our writer highlights a number of FTSE 100 stocks that offer different ways of investing in the artificial intelligence revolution.

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

3 top US dividend stocks for value investors to consider in 2024

I’m searching far and wide to find the best dividend stocks that money can buy. Do the Americans have more…

Read more »

Investing Articles

1 FTSE dividend stock I’d put 100% of my money into for passive income!

If I could invest in just one stock to generate a regular passive income stream, I'd choose this FTSE 100…

Read more »

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

Forecasts are down, but I see a bright future for FTSE 100 dividend stocks

Cash forecasts for UK dividend stocks are falling... time to panic! Actually, no. I reckon the future has never looked…

Read more »

Young female analyst working at her desk in the office
Investing Articles

Down 13% in April, AIM stock YouGov now looks like a top-notch bargain

YouGov is an AIM stock that has fallen into potential bargain territory. Its vast quantity of data sets it up…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Beating the S&P 500? I’d buy this FTSE 250 stock for my Stocks and Shares ISA

Beating the S&P 500's tricky, but Paul Summers is optimistic on this FTSE 250 stock's ability to deliver based on…

Read more »