For me, the FTSE 100 has been a great place to look for cheap and undervalued stocks in recents months. Russia’s invasion of Ukraine was one reason for this, with the ensuing market volatility creating both risk and opportunity, as well as being tragic on a human level.
While many stocks have now recovered to their pre-invasion figures, some sectors are still trading at a discount. Aviation is one such area, but I’m also looking for passive income, and many stocks in the travel industry are not currently paying dividends. Another sector I’m particularly keen on is housebuilders.
However, today I want to look at two banks, HSBC (LSE:HSBA) and Barclays (LSE:BARC). I believe both these blue-chip stocks offer considerable upside potential.
HSBC
Despite a recent recovery, HSBC is still trading at a substantial discount versus pre-pandemic levels. The British bank’s share price has been impacted by a number of external factors, including inflationary pressure and the fallout from the Evergrande situation in China.
HSBC may be up 22% over the course of the past year, but it’s still down nearly 15% over three years and 20% over five years.
However, the share price belies some positive performance data. Last year, HSBC recorded pre-tax profits of $18.9bn, trumping its performance in 2019 and 2017.
The bank’s price-to-earnings (P/E) — a ratio for valuing a company that measures its current share price relative to its earnings per share (EPS) — stands at 11.6. The figure suggests that the stock could be considered on the cheap side.
Moreover, I’m confident in HSBC’s long-term strategy. Since the 2008 financial crash, the bank has focused on core markets, namely the UK and China. More recently it has outlined a plan to accelerate growth in Asia. In 2021, HSBC said it would speed up its ‘pivot to Asia’ plan, thus exposing it more to a potential high-growth market.
The London-headquartered bank also has an attractive 3.58% dividend yield.
Barclays
The Barclays share price has been sliding for months, and this was exacerbated on Monday after it revealed a £450m blunder. Today, the share price sits at around 152p per share, that’s almost 20% down over the last year 33% down over the past five years.
Despite this, I still see a lot of value in Barclays stock. For one, it has a lot of upside potential having traded above 215p a share as recently as January.
Once again, the share price is low despite positive performance data. In 2021, Barclays reported a full-year net profit of £6.38bn. The figure was far ahead of analyst expectations of £5.75bn and came on the back of impressive results in its corporate and investment banking division.
Moreover, the bank is offering an appealing 3.95% dividend yield, which is supported by a healthy dividend coverage ratio. The ratio in 2021 stood at 6.25, suggesting the lender could pay the dividend more than six times from its earnings.
I hold both of these stocks but will look at adding more in the coming weeks. I believe HSBC and Barclays have considerable upside potential and I’m confident about future growth.
