3 Finance Stocks Set To Soar: HSBC Holdings plc, Provident Financial plc And Direct Line Insurance Group PLC


In the last month, investor sentiment in HSBC (LSE: HSBA) (NYSE: HSBC.US) has improved sharply and has sent the bank’s shares up by around 8%. Of course, the appeal of HSBC is very clear: it offers excellent growth prospects at a very reasonable price, which means that in the long run it appears to be a great stock to own.

For example, it is forecast to increase its bottom line by 19% this year, and by a further 5% next year as it implements significant cost saving measures and continues to benefit from an upturn in the global economy. This, when combined with a price to earnings (P/E) ratio of just 11, equates to a price to earnings growth (PEG) ratio of only 0.6. This indicates that further share price gains lie ahead for the bank, with its diversity and strong balance sheet also limiting the risks to its investors moving forward.

Provident Financial

The track record of Provident Financial (LSE: PFG) is stunning, with the lender delivering earnings growth in each of the last five years and averaging a rise of 13.2% per annum during the period. And, looking ahead, further growth is still to come, with Provident Financial forecast to increase its net profit by 16% in the current year, and by a further 10% next year.

However, there is much more to Provident Financial than just strong growth potential. It also offers excellent income prospects, with its shares currently having a yield of 3.9% from a dividend that is covered 1.3 times by profit. This shows that its shareholder payouts are very sustainable and, as such, are set to rise sharply over the medium to long term.

Direct Line

However, when it comes to dividends, Direct Line (LSE: DLG) is one of the most appealing stocks in the finance space. That’s because it currently yields an incredible 7.8%, although dividends are due to be cut significantly next year, which puts Direct Line on a forward yield of 5%.

Still, that’s a great forward yield and means that the company’s shareholder payouts are very sustainable, which bodes well for the future success of the business. In fact, Direct Line’s dividend coverage ratio is set to be a very healthy 1.6 next year, which provides it with scope to reinvest profits and grow its bottom line over the medium to long term. And, with Direct Line trading on a price to book (P/B) ratio of just 1.7, it appears to offer excellent value for money, too.

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Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.