These days if a stock is performing badly, people tend to blame either Brexit or the US-China trade war. And with a global presence, for HSBC Holdings (LSE: HSBA), things are no different. Undoubtedly the bank is heavily exposed to both of these events. Should this cause investors to worry?
There is no doubt that current market conditions have taken their toll on HSBC. Protests in Hong Kong, its largest market, have also caused concern among potential buyers and HSBC said it is aware of the “geopolitical tensions”. Almost 80% of the corporation’s profits stem from Asia, therefore any political uncertainty in the territory will impact the group’s stock price. The share price is down over 8% in the year to date.
No Cause For Alarm
With a whopping dividend of over 6% and a P/E ratio of about 11, I believe the shares are currently undervalued. I think investors are being distracted by the perceived impact of the world’s geopolitical tensions, when things at HSBC are steadily improving. Take the 2019 interim results that were released in August. The group reported a rise in profit after tax of 18.1% and a revenue increase of 7.6%. Reported profit in Asia also increased, soothing my concerns about the US-China tariff war. The icing on the cake for me was the $1bn share buyback, which is expected to commence shortly.
Recently, HSBC’s board has also had a shake-up, with former chief executive John Flint leaving by mutual consent after less than 18 months in the position. Flint’s short time in the role has led some to say that it was a strange move as his reforms did not have a chance to bed in. But regardless of that, Noel Quinn has taken over the chief executive position on an interim basis while the board searches for a permanent replacement. It is uncertain at this time what the impact of this change will be. However it could be an ideal opportunity for Quinn to prove himself and we might even possibly see some significant strategy changes soon.
A Stock For All Seasons
With its high dividend yield and attractive P/E ratio, I think HSBC could offer potential buyers a strong balance of growth and income. Of course, the political landscape is problematic, yet I believe HSBC’s scale and diversity is a benefit when compared to its rivals Lloyds and Barclays.
The announcement of the $1bn stock buyback was music to my ears and gives me an indication that the shares could be undervalued, while the buyback move will hopefully preserve or even increase the stock price.
Ultimately, I believe that HSBC is a solid business and, hopefully, as the situation between the US and China eases and the outlook for the world economy improves, investors will appreciate this.
T Sligo has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. 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.