HSBC Holdings (HBC)|
Shares of HBC have fallen by 20% for the year. The main issue is the problems surrounding Europe and investors are quick to dump any financial stocks. Among the concerns of investors include liquidity risk, deeper recession and possible defaults of the economy and eventually some banks. HBC has been raising capital via notes issuance and asset sales. The key is having enough capital to withstand the current crisis. Over time, lot of financial stocks will be re-rated once the economy picks up speed.
HBC trades at 7 times earnings and 0.90 times book value. It also carries a dividend yield of 4.30%. Looking at these valuations, it’s not as bad as other banks which trade at deeper discounts to the book value. But HBC trades at 10 to 30 times historically. Its competitors also trade in the same band. Deustche Bank AG (DB) trades at 10 times earnings and has a dividend yield of 3%. Another bank, Lloyds TSB Group Plc (LYB), trades at 7 times earnings and carries a dividend yield of 2.4%. The bank has a neutral rating among the brokerage houses that covers it. The medium term catalyst is when the debt issues are resolved. Investors should be patient holding this stock.
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