Why HSBC Holdings plc could climb 50% in the next year

HSBC Lion, London
HSBC Lion, London

HSBC(LSE:HSBA) is Britain's biggest company by market capitalisation. Even during these times when banker-bashing has been rampant and interest rates are at rock bottom, it's a business that makes £10bn in net profit each year.


That's a formidable achievement. Compare it with its peers in the UK, such as Barclays and Lloyds Banking Group - these firms make nowhere near as much money, have far lower valuations, and have struggled after they've been hit by wave after wave of fines and litigation.

HSBC is one of our leading companies

HSBC also came under a welter of criticism, fines and over-regulation last year. It could easily have moved its headquarters to Hong Kong, and this would have been a boon for China, and a disaster for Britain. Thankfully, it has decided to stay in the UK.

Whatever we think about the Credit Crunch, the banks in Britain are still some of our leading companies and biggest employers, and they should be supported, not denigrated.

Yet, with so much bad publicity, the company's share price has been on the slide. Earnings, while not increasing, have been holding up well, despite substantial PPI fines. EPS in 2013 were 50.94p in 2013, 44.33p in 2014, and 43.2p in 2015.

This means a contrarian buying opportunity for HSBC has opened up. A trailing P/E ratio of 12 is very reasonable, and there's a tempting 6% dividend yield for income investors.

A contrarian buying opportunity

I was fearful of the consequences of Brexit when we voted to leave, but, thankfully, this seems to be a case of a political earthquake that has had little effect on ordinary people and the economic environment.

Britain continues to storm ahead, and the weak pound has meant a surging FTSE 100. And as bear market turns to bull market next year, both in Britain and around the world, I expect HSBC to go higher, perhaps substantially so.

Perhaps the strongest trends in the world are the rapid growth of markets such as China and India, and the emergence of a global middle class that numbers in the hundreds of millions. They'll be spending billions of renminbi and rupees on consumer products ranging from detergent and fizzy drinks to savings accounts and pensions. With its strength in these markets, HSBC is set fair to grow many years into the future.

What's more, the business's cautious investing stance means that it was relatively untroubled by the Great Recession, and doesn't have the mountain of bad debt that has had a debilitating effect on financials such as Royal Bank of Scotland.

That's why I think that, as optimism returns to the banks and to the FTSE 100, HSBC could climb 50% in the next year. So if you're an investor interested in both high dividends and steady share price growth, but prefer the stability of a blue chip to the uncertainty of a small-cap, then HSBC could be just what you're looking for.

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Prabhat Sakya has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.