Many beleaguered stocks have rallied due to the Covid-19 vaccine news in recent weeks. HSBC (LSE:HSBA) shares are widely held therefore many existing investors have benefitted from its recent rally. The fact that the HSBC share price is up over 25% in the past month makes me wonder whether now is a good time for me to buy.
Share price on the up
Prior to the market crash, the HSBC share price reached nearly 600p per share. When the Covid-19 pandemic hit, its shares tumbled. At its lowest point, shares were trading at 283p per share at the end of September. That meteoric drop equates to an over 50% reduction in price. Despite the woes HSBC experienced, I believe it was an accurate depiction of the world economy and market conditions.
Why I am tempted to buy shares
HSBC’s price-to-book value (P/B) is fairly low compared to levels prior to the market downturn. I do not expect it to remain low for much longer. I think it will continue to rise as the share price rises, coinciding with market conditions normalising. The Covid-19 vaccine has instilled a sense of hope across the world that this could be sooner rather than later.
The HSBC share price is tempting, as the company may resume dividends in 2021 too. 2020 was a year to forget for anyone who owned UK bank shares. Very early in the year, the Bank of England (BoE) banned all UK banks from paying any dividends to investors. The reasoning behind this was that banks would need as much capital as possible to support the dwindling economy during a global crisis the likes of which we had never seen. As for 2021, it has been reported that the BoE and major banks are discussing a dividend deal. Based on that, the consensus 2021 forecast for HSBC’s dividend is 27 cents per share. That equates to a healthy yield of over 5%.
HSBC share price: my verdict
I believe HSBC is a potential good opportunity right now but it carries some risk. There is talk of a second recession which could be disastrous for the UK economy and the banking sector too. That said, I feel a recession will only delay any recovery for HSBC and not stop it in its tracks.
All the talk of resumption of dividends is based on analysts’ forecasts and I have learnt that these don’t always come to fruition. Again, if the economy does not bounce back, the BoE may decide to ban dividends in 2021 too. It is important to note that HSBC is undergoing a restructuring. This restructure will see it move capital away from the US and European arms. Instead, this capital will be moved to its most profitable centre, which is Hong Kong. Furthermore it is reducing headcount and there is a general consensus among experts that this is needed as it was overstaffed.
The HSBC share price is one I am seriously considering right now at its current price levels. I do believe it will recover and could even pay a dividend next year. Across the FTSE 100, HSBC has been one of the best dividend payers and I hope it regains this status in the future. In the meantime, here is another stock I really like, which also has some risk attached to it.
