There is something to love and hate in most stocks, but today I’m feeling the love for HSBC Holdings (LSE: HSBA) (NYSE: HBC.US). Here are five reasons why.
Its share price has struggled lately
I like buying stocks after their share price has fallen, rather than risen. So I’m intrigued to see HSBC is down 8% over the last three months. The dip can be partly pinned on a mixed set of interim results, which included a 7% fall in group revenues to $34.37 billion. But there was good news in there as well, including a 10% rise in pre-tax profits to $14.1 billion, and bad debts and other credit risk provision down 35% to $3.1 billion. Its capital position also strengthened. I smell a buying opportunity.
China is still growing
Another reason for the fall in HSBC’s share price is management caution over China. It recently warned that growth would slow to 7.4% in 2013 and 2014, below the Chinese government’s own target. But growth figures in today show the economy still rattling along at a better-than-expected 7.8%, which gives grounds for optimism. HSBC should also be a beneficiary when the the West starts seriously growing again.
HSBC is sharpening up its act
HSBC is making good progress in its bid to reduce its sprawling complexity. It has sold or closed 11 non-strategic businesses so far this year, taking the total to more than 50 since the beginning of 2011. All the banks need to tidy up their act, and I’m glad HSBC is doing its bit. This should also make it a little easier for investors to understand what they are buying.
It’s a big bank that yields 4.11%
Investors are waiting to see how and when the government will sell off its stake in Lloyds Banking and RBS, and when those banks will be free to resume their dividend payouts. We’re also waiting to see when Barclays will fully restore its dividend. Investors in HSBC have no such worries. The board recently declared a second interim dividend of 10 cents per share. It yields 4.11% at today’s prices, roughly double the Barclays yield of 2.11%. It is also comfortably above the FTSE 100 average of 3.5%. This makes it a tempting target for income seekers.
Gulliver’s travails won’t last forever
Love is too strong a word to use about any bank these days. HSBC is far from perfect, having been embroiled in drugs cartel money-laundering, PPI mis-selling and Libor fixing. But it is still one of the most profitable banks in the world with a comfy financial cushion: its Core Tier 1 ratio hit 12.7% at 31 March, up from 12.3%. Better still, chief executive Stuart Gulliver has been with the bank since 1980, and is committed to restoring the bank’s good name and glory days. I’m confident he will get there in the end. Credit Suisse expects HSBC to outperform its sector, with a target price of £7.80. Today, you can buy it for £6.77.
