The Motley Fool

These FTSE 100 shares are rising. Here what I’d do

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Stack of new bank notes
Image source: Getty Images.

The pandemic presents an ongoing struggle for most businesses, driving down both share prices and profits. However, in the past six months, these two FTSE 100 shares have risen 35% and 55% respectively. After this impressive run, I’m going to take a closer look at the investment case of these banking stocks.

HSBC

HSBC (LSE: HSBA) shares are down 8% year-to-date. However, the bank recently announced that its dividend payments will resume, an encouraging sign of financial health. There are some other reasons to be bullish about this stock’s investment case too.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

HSBC’s overwhelming presence in Asia is a massive asset. Covering 98% of Asia’s total GDP, the bank has massive market reach, as well as consumer loyalty. By 2030, Asia is expected to contribute around 60% of the world’s economic growth. This is encouraging for the FTSE 100 share’s growth projections.

However, there are some risks that need considering. HSBC revised its return on tangible equity target (RoTE) of between 10% and 12%. It is now targeting a medium-term RoTE of around 10%. This is essentially the bank reducing its profitability forecasting, something no investor wants to hear.

Banks must also face the growing threat that cryptocurrencies pose. The world seems to be moving in a crypto-centric direction, facilitating faster, more secure payments and doing away with the need for cash. This is a huge worry for banks like HSBC, which must quickly adapt to this problem.

Overall, although HSBC’s Asian growth is encouraging, there are still medium-term profitability problems. Nonetheless, at current share prices, I think this FTSE 100 share could be a solid addition to my portfolio.

Lloyds

Lloyds (LSE: LLOY) has risen a hefty 55% in the last six months and is up 22% in share price for the year. The reopening of the UK in the near future should provide a well-needed boost to the economy, complementing share prices. This huge increase in spending could lead to a period of post-pandemic inflation. While this is bad news for growth stocks, it’s good news for banks as it increases their net interest margins.

The bank currently trades off a price-to-book (P/B) ratio of 0.69. For context, a P/B ratio of under 1 shows the stock is being traded at a lower share price than current book value. This may signify the stock is undervalued, which is an important consideration for the investment case.

Lloyds’ 2020 Q3 update sent share prices soaring, revealing the firm had delivered a pre-tax profit of £620m. This contrasted with the £676m loss for Q2, down from a £1.3bn profit in the same period of 2019. The firm was able to turn round a statutory profit after tax of £1.4bn for 2020. Chief Executive Antonio Horta-Osorio stated these results demonstrated the strength of Lloyds’ “balance sheet and strategy”.

However, Lloyds bank is primarily UK-focused. This means that it is heavily reliant on UK economic performance. Although UK lockdowns are easing, there is no promise of a bright economic future. This is a disadvantage when comparing this FTSE 100 share to HSBC.

All things considered, I think this FTSE 100 share is solid. However, with such a domestic focus, I think there are better bank stocks I could add to my portfolio.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Dylan Hood has no positions in any of the shares mentioned. The Motley Fool UK has recommended 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.