Making stock market selections are never black-and-white decisions, and investors often have to plough through a mountain of conflicting arguments before coming to a sound conclusion.
Today I am looking at HSBC Holdings (LSE: HSBA) (NYSE: HBC.US), and listening to what the angel and the devil on my shoulders have to say about the company.
Worries persist in The Americas
Although HSBC is widely touted as a great emerging market play, HSBC is not enjoying bounding success in the developing regions of Latin America, while its performance in North America also continues to drag.
The bank noted in this week’s interims that revenues from the Latin region fell almost 15% during July-September from the same 2012 period, to $369m, while in North America turnover dropped more than 5% to $606bn. And looking ahead, the bank warned that it expects economic growth to remain slow in Latin America. It also said that growth in the States is likely to remain weak by historical standards.
Asia continues to heat up
Still, HSBC largely garners massive strength in diversity from its pan-global operations, and specifically the company continues to witness surging progress in its businesses in Asia.
The bank said in this week’s update that “indications are that economic growth in mainland China is stabilising with positive implications for Hong Kong and the rest of Asia-Pacific,” painting a rosy picture for future revenues. Indeed, the firm’s businesses in Hong Kong saw both revenues and profits post another quarterly rise during the third quarter, and pre-tax profits here increased 16% to $2.08bn from the corresponding 2012 period.
Margins continue to erode
An ongoing worry, however, is the state of the company’s net interest margin. This decreased year-on-year in the first nine months of 2013 due to “significantly lower gross yields on customer lending,” itself driven by high-yielding asset disposals and downward interest rate trends in a number of countries.
Indeed, Investec expects deteriorating margins to contribute to the bank missing its 12% return on equity target for 2013. The broker also forecasts the effect of falling margins to partially cause the firm to miss its return on equity targets through to 2015.
A fantastic all-rounder
But City analysts are largely in agreement that HSBC is set to provide bountiful shareholder returns, both now and well into the future.
Indeed, forecasters anticipate earnings per share to surge 31% and 8% in 2013 and 2014 correspondingly, leaving the firm dealing on a P/E rating of 11.4 and 10.6 for these years — any reading around 10 is classed as great value. And with dividend yields of 4.7% and 5.3% for these years, based on current payout projections, the bank represents a great pick for both growth and dividend investors.
An angelic share selection
I strongly believe that HSBC is a great stock selection at exceptional prices. With extensive operations in emerging regions ready to tap in to surging long-term growth rates — especially those of Asia — I expect the bank’s earnings and dividend outlook to continue to improve.
