It seems as though whenever the government finds itself in a tight spot, it is able to shift the blame for economic woes onto the banking sector. Since public opinion is very much against the ‘excesses of the city’ and the ‘immoral behaviour of bankers’, this has proven a relatively easy game for the government to play, and win.
Of course, with the general election now on the horizon and the government still hopeful of shifting at least one of the part-nationalised banks from its books, ‘banker bashing’ may become less prevalent during the next two years.
Indeed, whatever your view on the sector (and the people who work in it), you know as well as I do that a golden rule of investing is to listen to your head and not your heart. With this in mind, I think that HSBC Holdings (LSE: HSBA) (NYSE.HBC.US) should be high-up on your list of priority stocks.
Certainly, HSBC is not ‘whiter than white’. A $1.9bn fine for unintentionally laundering the proceeds of Mexican drug money, as well as being involved in the PPI scandal and ‘casino banking’ scene mean it may be a company you love to hate. However, from an investment perspective, it really does stack up.
Shares currently trade on a price-to-earnings (P/E) ratio of 14.8, which compares favourably to the financials sector, which has a P/E of 18.2. Furthermore, earnings per share are forecast to grow at around 10% per annum over the next two years, figures which few FTSE 100 companies are able to match. In addition, shares currently yield an impressive 4% from a dividend which is well covered and has the potential to grow in line with earnings.
Of course, the banking sector remains bruised and battered from a truly awful five years. The public, politicians and business community remain steadfast in their hatred of the sector and its employees.
However, brisk earnings growth and an impressive yield, plus the potential for less bad news flow in anticipation of a privatisation of Lloyds (LSE: LLOY) and/or HSBC, Lloyds and RBS (LSE: RBS) mean than HSBC could offer a boon to the investor who listens to his head and not his heart.
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> Peter owns shares in HSBC, Lloyds and RBS.