Should You Buy Synthomer PLC Instead Of HSBC Holdings plc And Johnson Matthey PLC?

Shares in speciality chemicals company Synthomer (LSE: SYNT) are up by almost 3% today after it released an encouraging set of first half results. Due to improved performance across America, where margins have risen versus the comparable period last year, and strong sales in Asia, Synthomer’s pretax profit has risen from around £30m in the first half of 2014 to almost £37m in the first half of 2015.

Clearly, a weak Eurozone has not been good news for the company and, with the Euro depreciating considerably as a result of a looser monetary policy being employed by the ECB, Synthomer’s financial performance has been held back somewhat by currency headwinds. However, the underlying performance of the business is strong, with its construction and coatings, functional polymers and foam markets all delivering impressive performance.

Looking ahead, Synthomer has a bright outlook. For example, in the current year it is forecast to increase its bottom line by 4%, while in 2016 its net profit is set to rise by as much as 10%. And, even though its shares have risen by a whopping 43% since the turn of the year, they still trade on a respectable price to earnings (P/E) ratio of 16.6. This means that Synthomer trades on a price to earnings growth (PEG) ratio of just 1.6, which indicates that its share price could continue to move higher over the medium term.

In fact, Synthomer looks set to continue to outperform its chemicals sector peer, Johnson Matthey (LSE: JMAT). It has seen its share price fall by 14% since the turn of the year and, even so, it still trades on a relatively high valuation. For example, Johnson Matthey has a P/E ratio of 15.8 and, when its growth prospects are taken into account, this rating seems to be rather high.

For example, Johnson Matthey is expected to post a rise in its bottom line of just 2% this year, followed by 7% next year. This puts it on a PEG ratio of 2, which indicates that Synthomer has greater potential to deliver capital gains. And, with Synthomer having a yield of 2.9% versus 2.5% for Johnson Matthey, it appears to be a more promising income stock, too.

Clearly, there are other stocks in the FTSE 350 that offer even more potential growth and income performance than Synthomer. That’s at least partly because the chemicals sector is relatively popular among investors at the present time (as highlighted by the performance of Synthomer in 2015). However, the banking sector enjoys far less appeal among investors right now, with HSBC’s (LSE: HSBA) P/E ratio of just 11 indicating that it has tremendous scope for an upward rerating over the medium to long term.

Furthermore, HSBC yields almost twice that of Synthomer, with its yield standing at 5.7%. And, with HSBC expected to post earnings growth of 18% this year, its PEG ratio of 0.6 indicates that its shares could turn the tables on poor performance during 2015 that has seen them decline by 5% year-to-date.

So, while Synthomer may be a more appealing investment prospect than sector peer, Johnson Matthey, HSBC remains the preferred option for long term investors.

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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.