The current market turmoil offers a great opportunity to snap up the shares of HSBC (LSE: HSBC), SABMiller (LSE: SAB), and GlaxoSmithKline (LSE: GSK). Let’s check out their recent performances and a few other financial metrics.
HSBC: Time To Buy?
The bank is selling assets to shore up its capital position, but the market is concerned about sluggish growth in Asia, where a large portion of its operations are based.
Its shares currently change hands at around 500p and are down 20% in 2015; according to consensus estimates from Thomson Reuters, they offer upside of about 20%, but if bullish analysts are right, capital gains could be in the region of 50% over the next 12 months.
I am inclined to agree with those projections, and not only because HSBC stock trades at depressed trading multiples of 10x forward earnings. Its payout ratio is fine, while its high dividend yield (6.4%) signals that the shares may be oversold as investors overreacted to very bad news from China in recent weeks.
SABMiller: A Solid Buy At This Price?
This is a slightly less risky investment than HSBC, at least based on its beta of 1 versus HSBC’s 1.1.
The brewer is a long-term bet on emerging market growth, but even if growth sputters there, it remains an appealing proposition at its current share price of 2,960p. I have long argued that its fair value is around 3,200p, so if I am right — and if you buy its shares today! — you could pocket an immediate 8% pre-tax paper gain.
Its equity valuation has fallen 10% year to date but has come under more pressure in recent days as Citigroup and Credit Suisse downgraded the stock to 3,300p and 3,100p, respectively. While it’s true that large acquisitions will be difficult to pull off following the $10bn+ purchase of Foster’s in 2011 (hence SAB now offers less “synergy potential” than in previous years), SAB management has historically been particularly good at targeting efficiency measures, while receiving the backing of relationship banks, which has helped it manage effectively its capital base.
All this will likely support a dividend yield of between 2.5% and 3% over the next 30 months.
One Direction For GlaxoSmithKline
With a lowly beta of 0.6, GSK should be the less risky investment of the three in a bear market, but I have doubts that management will be able to meet expectations. There’s no sign of much-needed spin-offs, which were expected towards the end of the year.
After a decent start in 2015, management has failed to convince investors that they should pay up to own Glaxo stock: one problem is that managers have proved to be too conservative, although Glaxo has clearly outperformed both SAB and HSBC, having recorded a -6% performance since early January.
According to market consensus estimates from Thomson Reuters, potential upside here is lower than that of HSBC and SAB at between 11% and 34%. My take is that based on a multitude of factors — trading multiples, assets base, returns cycle, drugs pipeline — its shares may have only one way to go, and that is up!
Alessandro Pasetti has no position in any shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline and 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.