The Case For Buying HSBC Holdings plc While It’s Cheap

HSBC Holdings plc (LON: HSBA) has been stuck in neutral for several years, but it could soon start to accelerate again, says Harvey Jones.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

If you like investing in out-of-favour FTSE 100 blue chips, as I do, then I suggest you run the rule over HSBC Holdings (LSE: HSBA) (NYSE: HBC.US). While high street rivals such as Lloyds Banking Group have raced ahead in recent years, HSBC has been stuck in first gear. In fact, its share price has stalled for the past three years, going precisely nowhere. That has knocked the forecast price-to-earnings valuation to 10.7 times earnings for December 2014. Given that HSBC is supposed to be the good bank, that doesn’t look like a bad price to pay.

I suspect it won’t look such good value for much longer. In fact, the entire banking sector has shown signs of life this year, following publication of the Bank of England’s Bank Liabilities Survey. This lifted banking stocks across the board, by revealing improvements in their capital metrics and retail deposits, and a decline in their funding requirements. Not that I was too worried. HSBC is one of the most strongly capitalised banks of all, with its Core Tier 1 ratio recently up from 12.7% to 13.3%, and has the further security of massive diversified global revenues. But it is another milestone on the long road to financial respectability.

Happy at home

If you feel you’ve missed the boat with Lloyds (up 200% in two years), Royal Bank of Scotland Group (up 70%) or Barclays (up 50%), HSBC could be the best way to cash in on the next phase in the banking sector recovery. I’m glad management has denied plans to sell off a stake in its UK retail banking arm, it doesn’t need that distraction right now, and anyway, why would it want to sell out of the UK’s relatively healthy recovery prospects? The UK is one of HSBC’s two home markets, the other being Hong Kong, and together they contribute more than half of company profits. Q3 profits rose 30% to £4.53 billion, by the way. That looks like a healthy rate of growth to me.

After a stonking 28% rise in earnings per share (EPS) in 2013, growth is forecast to slow to a steady 9% this year. In 2015, EPS should edge up to 11%. That is expected to lift the forecast yield from today’s 4.1% to a forecast 5.9% by December 2015. Patience should turn out to be a virtue with this stock. Exactly one month ago, I predicted that HSBC was the bank to watch in 2014. It is already up 5% since then. Providing there is no major external shock, such as a China blow-up, I would expect HSBC to move up the gears over the next few years. And you can keep pocketing that meaty dividend until the company is cruising again.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Harvey owns shares in RBS. He doesn't own any other company mentioned in this article

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »