This isn’t an easy time to be a stock-picker, especially one focused on finding value within the FTSE 100 index. Thanks to Covid-19, there are several sectors (airlines, travel & leisure, etc) that are practically uninvestable right now.
Hence, my search for hidden value within the FTSE 100 has tended to concentrate on a few key sectors. I’ve been bargain-hunting mostly within the oil & gas, mining, and banking sectors. And yet prices keep falling, pushing these sectors further into bombed-out territory.
This FTSE 100 share is bombed-out
For example, take FTSE 100 behemoth HSBC Holdings (LSE: HSBA), whose shares keep dropping every time I rate them as a value buy. They’re down nearly 50% in a year.
Exactly a week ago, I claimed that HSBC shares were ‘as cheap as chips’ at 354.3p. Today, after unveiling half-year results, the FTSE 100 bank’s shares hover around 326p. That’s a further fall of 8% in a week, so now they must be even cheaper than chips, perhaps?
HSBC faces huge headwinds
As Europe’s largest bank and a leading lender in Asia, HSBC is suffering a perfect storm right now, thanks to these five factors:
- Being in the firing line of the emerging US-China ‘Cold War’.
- Concerns over a no-deal Brexit at the end of 2020.
- The impact of a second wave or rolling Covid-19 waves on lenders.
- The shape and pace of any post-Covid-19 economic recovery.
- Falling interest income due to zero or negative interest rates.
In short, now is not a great time to be a lender, never mind a FTSE 100 mega-bank with close to $3trn in assets.
Another FTSE 100 bank takes a beating
As for HSBC’s latest results, they make for grim reading, with hugely increased provisions against bad loans almost wiping out profits.
In the second quarter, HSBC set aside $3.8bn in loan-loss provisions, roughly $1bn more than analysts estimated. This takes the FTSE 100 firm’s loss provisions to $6.9bn over six months. For 2020 as a whole, total provisions could be as high as $13bn or as low as $8bn, the bank reckons.
For the half-year, HSBC’s reported revenues dropped by 8.9% year-on-year to $26.7bn. Reported profit before tax crashed by two-thirds (65.2%) to $4.3bn. Worse still, earnings per share at HSBC collapsed by three-quarters (76.2%) to just $0.10 (from $0.42). Ouch.
Hence, the FTSE 100 firm will accelerate its cost-cutting programme, including bringing forward the 35,000 job cuts already flagged up.
This FTSE 100 share is cheap
Today, HSBC shares dropped another 5% to 326p, their lowest since the darkest days of 2009. Before the global financial crisis, the FTSE 100 bank’s share price last plumbed these depths in 1996 – almost a quarter-century ago. As I said, they’ve fallen sharply in just a year and for the record, they’re actually down 49.6% over the past 12 months. So HSBC’s market value has halved, blowing up £70bn of shareholders’ capital in a year.
As a value investor, you have to ‘buy boldly when there is blood in the streets’. Things look bleak for this FTSE 100 share today, but it will bounce back. That’s why I would grit my teeth and fill my boots with HSBC shares today!
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Cliffdarcy has no position in any of the shares mentioned. 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.