The prospects for the global economy have been thrust into the investment spotlight in recent weeks. Concerns surrounding a global trade war, US interest rates and US fiscal policy are combining to create a degree of fear among market participants. As a result, the FTSE 100 has come under severe pressure, and could remain volatile in the near term.
In the long run though, FTSE 100 shares such as HSBC (LSE: HSBA) could offer strong total return potential. Valuations appear to be low, while their growth prospects could be brighter than many investors are anticipating. As such, now could be the right time to buy HSBC alongside a relatively cheap share which released a disappointing investor update on Friday.
That company in question is technical plastics products supplier Carclo (LSE: CAR). Its share price came under pressure following a profit warning, with trading in the first half of the year falling below expectations as a result of its underperforming Technical Plastics division. Three new medical programmes were delayed by customers during the period. However, all three entered production towards the end of the first half. Together, with planned new tooling programmes, this supports an expected stronger second half performance.
The implementation of an operational improvement programme has the potential to deliver efficiency opportunities, cost savings, and a number of price increases. Meanwhile, the company’s LED and Aerospace divisions have both performed well. As a result, alongside an expected improvement in its Technical Plastics division, the company has maintained guidance for the full year.
With Carclo now trading on a price-to-earnings (P/E) ratio of 7 following the update, it could offer a wide margin of safety. As such, now could be a logical time to buy it.
The HSBC share price also seems to offer good value for money. The company has a P/E ratio of around 13, which indicates it could have a margin of safety. The bank is continuing to invest heavily in its operations in Asia, where demand for banking-related products and services is due to increase over the medium term. With a lack of significant exposure to the UK economy, it may be better insulated from Brexit risks than some of its rivals.
HSBC, though, is a global bank. And with the prospects for the world economy uncertain, its shares could fall in the near term. Additional tariffs cannot be ruled out, while an overheating US economy could lead to uncertainty for the medium-term GDP growth rate of the world economy.
However, with the company having what seems to be a solid position in key growth markets, as well as a dividend yield of 6.1% which is covered 1.5 times by profit, its investment outlook appears to be encouraging. It could outperform the FTSE 100 and provide significantly higher total returns than a cash ISA.
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Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.