The Motley Fool

Are HSBC Holdings plc, RSA Insurance Group plc and Prudential plc value plays or value traps?

With HSBC (LSE: HSBA) trading on a price-to-earnings (P/E) ratio of just 10.9, it appears to offer excellent value for money. After all, it’s one of the world’s largest banks and is financially sound with strong long-term growth potential.

However, HSBC continues to be relatively inefficient when compared to its sector peers. With operating costs spiralling and its top-line growth rate coming under pressure, many investors may wonder whether HSBC is in actual fact a value trap.

Despite these problems, HSBC appears to be a strong buy. That’s because it has superb growth potential in China and the rest of the Asian economy, with demand for lending set to rise and HSBC being well-positioned to benefit from this. Furthermore, HSBC is implementing cost-cutting measures as it seeks to become increasingly efficient and with its bottom line forecast to rise by 8% next year, it appears to be moving in the right direction.

So, while HSBC’s share price may have disappointed over the last year, with it being down by 28%, now could be an excellent time to buy it for the long term.

Attractive yield

Also offering excellent growth potential due to its exposure to the Asian economy is Prudential (LSE: PRU). Like HSBC, Prudential’s share price has fallen in the last year and it’s now 15% lower than it was a year ago. However, with rising incomes across the emerging world meaning that demand for financial services products is set to rise, Prudential’s diversified products and services mean that it could become a major player in a number of high-growth niches.

Certainly, Prudential isn’t without risk. Recent changes to its management team appear to have weakened investor sentiment somewhat, but with its shares having a P/E ratio of just 11.9, these risks appear to be more than adequately priced-in. And with Prudential forecast to increase dividends per share by 10% next year, its 3% yield could become increasingly attractive for income-seeking investors.

Dividend rises ahead?

Meanwhile, RSA (LSE: RSA) continues to record a stunning turnaround under its current management team. Management has been able to thrust RSA back into growing profitability, with the insurance company forecast to increase its bottom line by 44% in the current year and by a further 24% next year. Both of these figures have the potential to improve investor sentiment in RSA and with its shares trading on a price-to-earnings growth (PEG) ratio of just 0.5, it appears to be a value play rather than a value trap.

Additionally, RSA is forecast to increase its dividend by 36% next year. This puts it on a forward yield of 4% and with dividends being covered twice by profit, there’s significant scope for more rises over the medium-to-long term.

Of course, finding stocks that are worth adding to your portfolio is a tough task, which is why the analysts at The Motley Fool have written a free and without obligation guide called 10 Steps To Making A Million In The Market.

It's a simple and straightforward guide that could make a real difference to your portfolio returns. As such, 2016 could prove to be an even better year than you had thought possible.

Click here to get your copy of the guide – it's completely free and comes without any obligation.

Peter Stephens owns shares of HSBC Holdings and Prudential. 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.