Franklin Resources (BEN) is a global investment management organization. The company’s primary...
HSBC: Low-Risk, High Yield from "World's Best Bank"
01/24/2018 5:00 am EST
U.S. stocks are now fairly expensive. The S&P 500, for instance, currently sells for 23 times trailing earnings. That’s 44% higher than its long-term average of 16 times earnings, cautions Mark Skousen, editor of High-Income Alert.
The United States enjoys modest inflation, low interest rates, cheap energy, full employment and rising corporate profits. So, it’s easy to make the case for higher-than-average valuations.
Still, I’m finding many fine companies overseas that are trading at more attractive levels. One of them is HSBC Holdings PLC (HSBC).
Based in Britain — but founded in 1865 as Hongkong and Shanghai Banking Corp. — HSBC is one of the world’s largest financial institutions. (It also was named “World’s Best Bank” in the Euromoney Awards for Excellence in 2017.)
HSBC currently helps more than 38 million customers worldwide with saving, checking, credit cards, mortgages, investment banking and wealth management services.
It is particularly interesting to note that nearly one-third of HSBC's business comes from China, and that percentage will only grow.
Non-mortgage consumer credit in Asia, outside of Japan, now tops $2 trillion, and Asia’s middle class is expected to grow by more than 100 million people annually over the next several years.
HSBC has pledged to remain “the leading international financial services organization in China.” At this juncture, it’s hard to imagine anyone mounting a serious challenge.
The bank enjoys huge economies of scale, has local branches and contacts spread throughout the country and has been aggressively acquiring stakes in other Chinese financial companies such as Ping An Insurance, China’s second-largest life insurance company.
HSBC is one of the healthiest and best-capitalized banks in the world. It also is one of the biggest dividend payers. The bank pays out more than $10 billion to shareholders annually, for a current yield of 3.84%.
With the world enjoying synchronized growth for the first time in years, this is a great time for banks. Revenue at HSBC rose 40.1% in the most recent quarter. The bank enjoys a 24.7% operating margin, yet it is quite inexpensive at only 1.1 times book value.
This is an excellent, low-risk, high-yield play on Asia’s rising middle class. So, pick up HSBC Holdings PLC today at market. Place a sell stop at $42 for protection.
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