Procter & Gamble

Over the past 10 fiscal years, Procter & Gamble’s dividend has increased substantially, rising from $1.80 per share in fiscal year 2010 to $3.03 per share in fiscal year 2020. Management has also returned a lot of capital back to shareholders, with the company returning around $135bn of value to shareholders over the past decade through a combination of dividend payments and share repurchases and exchanges. In the second quarter of fiscal 2021, the company returned $5bn in capital alone, with $2bn in the form of dividends and $3bn in terms of stock repurchases.

Over the past 10 years, Procter & Gamble stock has more than doubled due to a combination of dividend increases, capital returns, and the company’s overall strength as a result. If inflation remains about the same, I believe the stock could approximately double again. If inflation is higher than expected, I think Procter & Gamble could do even better given the company’s pricing power. With the expected price increases of existing products, overall market growth due to rising incomes, and potential productivity increases due to improving technology, I believe Procter & Gamble will continue its strong fundamental performance into the future.

With that said, there are still challenges. Unemployment is high in many places in the world and the pandemic remains ongoing. The long-term shift of commerce to digital could bring a new set of competition and management will need to continue to execute for its stock to do well.

Unilever

Like Procter & Gamble, Unilever shares have also more than doubled over the last 10 years as the company has continued to grow its customer base and build its portfolio of leading brands. As of 2021, Unilever certainly has a lot of both, with 2.5bn customers spread across 191 countries and a portfolio of 13 brands that do more than €1bn in sales each year.

Unilever also does well in countries that could grow substantially in the future. The company has the number one market position (among fast growing consumer goods companies) in India for example, and it also has a €3bn a year business in China. As those giant economies continue to develop, I think Unilever’s business in those countries and developing markets in general will likely continue to grow. If Unilever’s business grows, I think its stock price could benefit. Given the company’s potential, I think the stock could double again over the next 10 years.

Like Procter & Gamble, the long-term shift of commerce to digital could bring new competition to Unilever and management will need to continue to deliver the results that the market expects in order for the stock to do well. If margins or demand is weaker than expected, Unilever shares could have potential downside.

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. 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.

Diageo

Diageo has regained some of its momentum. For the half year ended 31 December 2020, the company reported free cash flow of £1.8bn and management raised the interim dividend by 2% to 27.96p per share. Management is also “cautiously optimistic about the near-term continued recovery” of its business and overall confident in the future.

In the future, I reckon Diageo could potentially maintain some of that momentum by utilising data and digital insights to increase marketing effectiveness. Given its financial strength, I think the company could also expand through M&A or by potentially creating new brands.

To me, Diageo has an attractive combination of defensive characteristics and growth potential. Given that its products are affordable for many, demand for Diageo doesn’t change all that much during difficult times. Diageo was still profitable during the recession in 2009 for example. With many of Diageo’s customers in developing nations where incomes will likely grow substantially in the future, I reckon the company could potentially grow earnings in the future too.

With that said, the market is expecting Diageo’s fundamentals to recover pretty strongly given its recent rally. If that doesn’t happen or if Diageo’s brands don’t sell as much as the market expects, the stock has potential downside.

Reckitt Benckiser

Reckitt Benckiser is a consumer staple with a portfolio of leading brands in hygiene, health, and nutrition. Given the company’s scale, Reckitt Benckiser can often realise attractive margins even while spending substantial money on advertising. With its portfolio of leading brands, the company also has a pretty wide moat.

As a leading consumer staple, Reckitt Benckiser benefits from long-term trends such as rising incomes and urbanisation, which often helps increase economic growth. Due to Reckitt Benckiser’s position in the market and its operational strength, I reckon the company has the potential to grow around 4%-6% on average annually in the medium term if management continues to perform as they expect. With that type of growth, I think Reckitt Benckiser earnings per share could grow in the future and management could potentially return more capital back to shareholders.

While management kept the full-year dividend per share for fiscal year 2020 the same at 174.6p, I think they could increase the dividend in later years as the company potentially achieves its goal of strengthening the balance sheet.

Although many leading consumer staples have historically been great companies to own, they face potential challenges from online competition. Given their position as platform operators, companies like Amazon could potentially compete more with Reckitt Benckiser in the future with internal brands. Those internal brands could potentially put pressure on Reckitt Benckiser’s margins or take away some of Reckitt Benckiser’s growth potential. Reckitt Benckiser could also have downside if the economy weakens or if management doesn’t deliver the results the market expects.

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Jay Yao has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon. The Motley Fool UK has recommended Diageo and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. 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.

Tesla: substantial momentum

As it stands currently, I reckon Tesla has considerable fundamental momentum. With the anticipated growth in electric vehicle (EV) demand, Tesla has a large and growing market to sell to. Given Tesla has spent a lot of time and resources developing autonomous driving software, Tesla has a potential opportunity in that sector as well.

Many believe robotaxis will become market ready in some areas of the world within a few years, and Elon Musk seems to be confident that Tesla could be one of the leaders. With the company’s current market cap, Elon Musk also has the resources to potentially buy artificial intelligence talent or autonomous driving companies willing to sell for equity if Tesla’s internal efforts run into hurdles.

Risks

While Tesla is the leader in EVs right now, it will have competition. Other companies like Volkswagen and GM are planning to go all electric in the future and the market for robotaxis may not be winner-take-all. As Elon Musk put it in a tweet, “When vast amounts of manufacturing are needed, as in robotaxis, this slows down rate of introduction, so maybe more like winner-takes-a-quarter. Still great”.

Tesla also has a very optimistic valuation. Elon Musk himself said that the stock was too high around May of last year when Tesla share price was considerably lower.

SpaceX and the future

Given Tesla’s high valuation and the competition, I wouldn’t buy at the current Tesla share price except under one condition: that’s if Elon Musk merged Tesla with all his other companies, including SpaceX.

In terms of Elon Musk’s other companies, none is larger than SpaceX, which makes potentially cost effective rockets that launch things into space. Recently the private market valued SpaceX at around $74bn, or about 13.5% of Tesla’s current market cap. 

If Tesla bought SpaceX and Elon Musk’s other companies, I believe the combination could be a long-term winner. SpaceX would have the financial resources of Tesla and Tesla shareholders would get the future potential for SpaceX. The combination could be something that would instantly differentiate Tesla from every single other car company. Although GM and Volkswagen might be bigger in terms of total vehicle production, they don’t make reusable rockets. To me GM and Volkswagen wouldn’t have the same type of potential as SpaceX as whoever wins market share in space early will have a head start in a basically limitless market. I reckon investing in that potential combination would be socially responsible as well. 

Given all the potential SpaceX has in the long term, I think the combination of the two largest Elon Musk companies would be something that would cause me to buy Tesla shares if they trade for the current Tesla share price of around $600 or lower. Whether Elon Musk decides to merge his companies is up to him, however. 

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. 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.

Given the stimulus and falling Covid-19 new cases, many economists expect substantial economic growth. As a result, I’d buy the stocks of three companies at their current share price: JPMorgan Chase (NYSE:JPM), Berkshire Hathaway (NYSE: BRK.B), and Visa (NYSE: V).

A leading US bank

If the US economy strengthens, I reckon leading US bank JPMorgan Chase could benefit from more loan growth and potentially fewer loan losses. Although interest rates are low right now, I think JPMorgan Chase will likely benefit from interest rate normalisation in the future as the economy improves too. Given JPMorgan Chase’s strength, it’s a stock I’d buy at the current price.

If JPMorgan Chase makes more money, the potential for capital returns through dividends and share repurchases likely increases. Presently, the bank pays a quarterly dividend of $0.90 per share, which is a yield of around 2.3% at current prices. With more earnings, JPMorgan Chase could raise its dividend in the future. 

JPMorgan Chase could have potential downside if the bank doesn’t make good loans or if its earnings don’t meet expectations. Many financial bank shares have historically declined during recessions and financial crises, and JPMorgan Chase could be one of them.

Warren Buffett’s company

Another stock I’d buy at the current price as another economic recovery play is Warren Buffett’s Berkshire Hathaway. I reckon Berkshire Hathaway will benefit from the eventual interest rate normalisation through its ownership of leading insurer GEICO and from a recovering US economy through its ownership of railroads.

Lately, Berkshire Hathaway has repurchased a lot of stock. In 2020, for example, Berkshire Hathaway bought back $24.7bn and there could be more on the way. Buffett said in his annual letter, “Berkshire has repurchased more shares since year-end and is likely to further reduce its share count in the future”. Given Buffett’s past track record of buying stocks, I view his buybacks of Berkshire Hathaway is a positive sign for the stock in the future.

With that said, Berkshire Hathaway shares could decline if the economy doesn’t do well.

Visa

Visa benefits from the US stimulus package and a recovering global economy in multiple ways. With the $1,400 stimulus checks for US citizens, many people will likely spend that extra money through Visa credit cards and thus give Visa incremental sales. Given a substantial percentage of consumer spending is now digital, Visa can also benefit from the rise of e-commerce too. If the global economy strengthens, digital spending could increase and Visa will likely benefit through credit card transaction fees.

Although it has a wide moat given the network effects of having so many users and merchants that use or accept Visa, Visa could have potential downside from future fintech competitors. With a forward price-to-earnings ratio of nearly 31, I think Visa will need to continue to show strong results to do well.

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Berkshire Hathaway (B shares) and Visa and recommends the following options: short January 2023 $200 puts on Berkshire Hathaway (B shares) and long January 2023 $200 calls on Berkshire Hathaway (B shares). 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.

Given the continued development of technology, new markets such as space travel could potentially open up further for leading aerospace companies as well. Given the long-term growth prospects of aerospace, I’d buy and hold two aerospace stocks, Lockheed Martin (NYSE:LMT) and Rolls-Royce (LSE:RR).

A leading military aerospace stock

Making the world’s most advanced fighter jets at scale is one of the toughest things to do. It takes decades of research and development to come up with the necessary technology to make jets like the F-35 or F-22. It also takes decades of manufacturing experience to make those jets in a dependable and economical manner. Given the huge difficulties, Lockheed Martin has a very wide moat, which I think makes it an attractive stock.

Given how important defence is to the US and other countries, Lockheed Martin also has a huge backlog and a degree of stability that many other companies don’t have. In terms of its 2020 performance, for example, Lockheed Martin increased its backlog by around $3.2bn to close at around $147bn. In a year where many aerospace companies saw their sales decrease substantially, Lockheed Martin reported record revenue of $65.4bn and record segment operating profit of $7.2bn.

The future for Lockheed Martin could be attractive too. With all of Lockheed Martin’s research and development expertise in aerospace, I think the company could one day do well in space too. Given the nearly endless possibilities in space and the company’s moat, Lockheed Martin is a stock I’d buy and hold.

Lockheed Martin has risks if it doesn’t win as many new defence contracts as the market expects in the future or if management doesn’t manage costs well.

A leading jet engine maker

Like many aerospace stocks, Rolls-Royce shares didn’t do very well due to the pandemic. Fewer people flying have led to fewer total engine flying hours, which has led to lower sales for Rolls-Royce’s civil aviation unit.

With the current Covid-19 vaccine roll-outs, however, I think Rolls-Royce’s fundamentals could improve over the next few years as the vaccines eventually take effect. If civil aviation rebounds over the next few years as many expect, Rolls-Royce could potentially generate substantial free cash flow. With the free cash flow, management can pay down debt, pay a dividend, or invest in new growth areas.

Of Rolls-Royce’s future potential growth areas, air taxis propulsion systems may be one of the most promising. Given Rolls-Royce’s R&D expertise and their brand strength in aerospace, I think they could potentially succeed in that market if management makes the right decisions.

With that said, Rolls-Royce is at risk if the pandemic lasts longer than expected due to Covid-19 variants. The stock could also fall if management makes a bad M&A deal or if they don’t deliver the type of earnings the market expects.

The post 2 aerospace stocks I’d buy appeared first on The Motley Fool UK.

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has recommended Lockheed Martin. 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.

Tesla’s the market leader right now

To me, there is no question that Tesla’s the market leader in electric vehicles (EV) right now.

Given the company’s head start versus other major automakers, Tesla has substantial market share in the sector. According to some estimates, Tesla had around 80% market share in the US EV market in the first half of 2020. Tesla also has substantial EV market share in China and Europe too. With that market share, Tesla has more scale and can produce batteries that are cheaper than many competitors. With cheaper batteries, Tesla can sell EVs at more competitive prices and potentially gain even more scale.

The EV sector itself is attractive given the expected growth in the industry thanks to government mandates and more competitive prices. According to some estimates, the market for electric vehicles could grow to $803bn by 2027 from $162bn in 2019.

Tesla also has some other key advantages in electric vehicles. Tesla’s Elon Musk is a great CEO in my view given how he has been able to achieve so much despite all the challenges. With its higher market cap, Tesla can also potentially afford to hire more of Silicon Valley’s best and brightest to develop products. In the future, Elon Musk can potentially use Tesla’s market cap to buy companies with promising technologies that could help it grow faster as well.

What I’d do

While Tesla is the current leader and has a lot of advantages, Tesla will have a lot of competition in the future. Companies like Volkswagen and GM are taking EVs very seriously, with Volkswagen investing substantial capital to try to catch up and even surpass Tesla at some point. In autonomous driving, other companies that have more financial resources than Tesla such as Alphabet are also competitors.

Tesla’s valuation is also still very high. Elon Musk himself said that the stock was ‘too high’ in May of last year when the stock traded for around $780 per share. This was before Tesla did a five-for-one split in August 2020, so Musk was referring to a price of around $156 per share based on the current share count.

Whether Tesla shares offer value at the current prices depends on how well the company does in the future. Although I don’t think Tesla will have 80% market share in 10 years, I think the company will be among the leaders. Whether that’s enough to justify the present valuation or to increase it, I’m not really sure.

All in all, I like Tesla’s attributes and I think it has great potential, but I feel Tesla shares are too richly valued given its current operations. While I might change my mind in the future if certain favorable developments were to occur, I have Tesla on my ‘watchlist’ instead.

The post Tesla shares have fallen over 20%. Should I buy now? appeared first on The Motley Fool UK.

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. 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.

Tesla & Royal Dutch Shell

Although its primary business is making electric vehicles, Tesla affects the oil market. Because Tesla shares have done well over the past two years, I reckon many renewable energy stocks have also done well over the same time span. As a result of the stock’s strength, many renewable energy companies have more access to capital to grow faster. If renewable energy stocks grow faster, renewable energy might be more cost competitive sooner due to more potential scale or better potential technology. Were that to happen, demand for traditional oil might not be as strong.

If Tesla shares decline, however, demand for other renewable energy stocks might also decline. This could lead to renewable energy being less competitive and that could be good for Royal Dutch Shell’s oil business.

I reckon Royal Dutch Shell also benefits from Tesla shares falling in a different way as well. If renewable energy stock shares decline, Royal Dutch Shell could potentially find it easier to do M&A with lower valuations in renewables and go green faster.

Royal Dutch Shell has recently done M&A in renewables by agreeing to purchase a leading electric vehicle charging company in the UK, Ubitricity. Given how big the sector will be in the future, I reckon management will go on to do more deals in the sector.

What’s next for Tesla?

While Tesla shares have fallen from their highs, I don’t really know what’s going to happen next. While Tesla is still trading at a very high valuation given its current fundamentals in my view, stocks don’t necessarily trade on fundamentals all the time. Fundamentals can also change over time. As a result of the uncertainty over Tesla’s future price, I wouldn’t factor the current share price decline of Elon Musk’s company into predicting where the RDSB share price might be headed.

The RDSB share price: what I’d do

I’d buy and hold shares given the current RDSB share price because I think Royal Dutch Shell has a lot of things outside of oil production that make it a ‘value stock’ in my eyes.

Royal Dutch Shell itself has competitive natural gas and chemicals businesses that theoretically aren’t as affected by electric vehicle adoption as oil prices are. For 2020, for example, Royal Dutch Shell’s chemicals division reported adjusted earnings of $962m and its integrated gas division reported adjusted earnings of $4.383bn.

Moreover, Royal Dutch Shell also has a growing convenience business that offers additional diversification. 

That said, I reckon the RDSB share price does still depend a lot on the price of oil. Although oil prices have increased substantially since November, they could always decline. Any meaningful decline might negatively affect the RDSB share price.

All in all, however, I’m optimistic management will succeed in transforming Royal Dutch Shell into a green energy company and I reckon that shares will increase in value over time.

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. 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.

Being perceived as more ‘high tech’ has helped some stocks attain higher valuations in the past. Here’s how I think the increasing usage of cutting edge innovations could affect the Rolls-Royce (LSE:RR) share price.

A trend to higher technology

It used to be that only IT and computing-related companies were considered as tech by many investors. Now I reckon that perception is changing. Tesla, for example, has shown that it’s possible for an industrials/consumer cyclical company to also be considered a technology company.

Tesla’s main product is cars, something that is an industrial/consumer cyclical product. Yet Tesla is also an IT company. It is gathering big data via car sensors to develop an autonomous driving technology product powered by AI. The market seems to regard Tesla as more of a tech company, given its very optimistic valuation.

Given the nature of its business, I think Rolls-Royce is similar to Tesla in that it is both an industrial and a tech company in one. On the one hand, Rolls-Royce makes industrial products like jet engines. On the other hand, it analyses and incorporates a lot of data into making products. Given the similarity, I reckon Rolls-Royce has the potential to be perceived as more of a tech company if management makes the right moves.

In terms of management moves, Rolls-Royce is doing several things currently. First, the company is “using advanced analytics, industrial Artificial Intelligence and machine-learning techniques to develop data applications that will unlock design, manufacturing and operational efficiencies within Rolls-Royce, and create new service propositions for customers”. Second, the company is researching new technology, such as hybrid power and air taxi propulsion systems that could help it in terms of its tech perception.

The Rolls-Royce share price: what I’d do

If management succeeds in using AI and big data to create better or new products and services for customers, I think the Rolls-Royce share price could benefit from potentially more demand or higher margins. I also reckon the company could potentially gain a higher valuation if the market perceives it more as a tech company.

With that said, Rolls-Royce isn’t Tesla. Tesla has an opportunity in the brand-new autonomous driving market. With the right execution, the market could be very lucrative. Given that air travel is more mature, I reckon Rolls-Royce’s opportunities aren’t as great in the medium term. In the near term, Rolls-Royce also still faces challenges with Covid-19 variants. If the pandemic lasts longer than expected, the stock might not do as well.

Nevertheless, I’d buy and hold the stock at the current Rolls-Royce share price. Rolls-Royce spends a lot on research and development, and the company has many world-class engineers. I reckon the company has a shot at making new AI/big data powered products that can increase profits meaningfully in the future. I also believe Rolls-Royce will benefit from the eventual recovery in air travel.

The post Can management use technology to boost the Rolls-Royce share price? appeared first on The Motley Fool UK.

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Tesla. 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.

Remote work has been a headwind

Remote work or working online has been a headwind for Rolls-Royce since the beginning of 2020.

Due to the desire to socially distance, remote work took off during the pandemic. As a result, virtual platforms that allow for business connectivity (such as Zoom) surged in terms of activity. With more people doing work remotely, fewer people have had to travel through air. Many conventions that were normally in person were switched to virtual, for example.

Rolls-Royce has been affected by this trend because it depends on civil aviation for a big part of its business. Specifically, the company makes a lot of its money from long-term contracts that are dependent on those engine flying hours. If fewer people fly due to remote work, total engine flying hours could decrease.

Can the Rolls-Royce share price surge if remote work decreases?

With the vaccine rolling out in many places, the pandemic could be controlled in many places this year. As a result, there is the potential for less remote work and more air travel. If that happens, Rolls-Royce could benefit fundamentally.

While the company could benefit from less remote work, I don’t know if the Rolls-Royce share price will surge because of it. The market looks ahead, and has likely already priced in much of the future effects of remote work usage decreasing.

It’s also important to note that many believe remote work is here to stay in some fashion. Many employers have noticed that they can get the same amount of work done for many jobs with remote work being included. Many employees also like working from home. Although their employees might still have to come to the office, many won’t have to come to the office every day given that they can work some days remotely.

My final Foolish thoughts

I’d buy and hold the stock at the current share price. I reckon there are many fast-growing economies that have relatively low penetration of flights per person that could drive demand for new airplanes for decades to come. Given Rolls-Royce’s moat in aerospace engines and status as one of the leaders in an industry dominated by few firms, I believe the company will benefit from that trend.

Rolls-Royce does have risk in the near term given new Covid-19 variants that have created uncertainty. If the variants become more resistant to vaccines than expected, the pandemic could last for longer and the company’s civil aerospace business might continue to not do well. This might not be good for the Rolls-Royce share price.

All in all, however, I think the stock has a lot of potential in the long term given the growth in civil aviation.

The post Can the Rolls-Royce share price surge if it overcomes this huge trend? appeared first on The Motley Fool UK.

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Jay Yao has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

While Greater China is the key profit centre for the bank now, India could be a huge one in the future. According to many estimates, India will have a population greater than Greater China’s at some point. Given India’s economic importance and growth potential, here’s more on HSBC’s India operations and why I think the bank at the current HSBC share price is a buy.

HSBC India

Given that it has so many international branches, HSBC offers a range of solutions and products to help Indian companies do business internationally. Given its presence in India, HSBC also helps many international business do business there. And they really do want to do business there. For international companies, India is attractive given its rising incomes, population of more than 1.3 billion, and its English-speaking population. For so many companies, Indian GDP growth will be a huge trend for decades to come. 

HSBC’s recent results in India have shown improvement with the increasing adoption of mobile banking helping. In 2020, for instance, it reported a profit before tax in its India business of $1.024bn, up 1.78% year-on-year, despite the pandemic. Total revenue from the local business rose an even stronger 17%. As a result of the India performance last year, the country was the third-largest pre-tax profit centre for HSBC (after Hong Kong and mainland China).

For the future, I believe management’s investments in fintech and potential M&A could help with the bank’s growth in the region. Many Indians now have mobile phones, giving HSBC a much larger potential market if the bank successfully uses its technology to service that market. The country is also ripe for consolidation. With HSBC’s huge resources, the company could afford to buy shares of local banks with attractive growth prospects. Although India is a huge country, many leading Indian banks still have market caps smaller than that of leading Western banks. That would make purchasing big stakes in Indian banks easier. 

The HSBC share price: what I’d do

HSBC faces some headwinds. Currently the bank has to contend with the ultra-low-interest-rate environment, which has lowered interest rate-related income. And the continued effects of the coronavirus outbreak have caused loan losses. Management has also made some bad M&A deals before that have destroyed value.

Nevertheless, given the price-to-book ratio of around 0.72 and the expected economic recovery following Covid-19 vaccine rollouts, I’m optimistic on the shares. 

I’m especially optimistic about HSBC’s long-term future in India. While it doesn’t account for a large percentage of the bank’s total pre-tax profits today, the country could account for substantially more if management makes the right moves. I’d buy and hold.

The post How I think this huge trend could help the HSBC share price appeared first on The Motley Fool UK.

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Jay Yao 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.