HSBC Holdings plc: an under-the-radar growth stock with strong momentum
In the last six months, the HSBC(LSE: HSBA) share price has risen by 15%. This is an outperformance of the FTSE 100 of around 12%, which shows that the stock has excellent momentum at the present time. This strong run of capital growth could continue, since HSBC appears to offer a wide margin of safety, has a sound strategy and exposure to a lucrative growth story in China.
HSBC may not be considered a growth stock by many investors. After all, it is one of the largest stocks in the FTSE 100 and operates within a wide range of markets. As such, the chances of it offering above-average growth may be somewhat limited.
However, the changes the bank is making to its business model are having a positive impact on its bottom line. For example, it is in the process of reducing costs and shifting its focus towards faster-growing markets such as China. In its most recent update, it reported strong growth from Asia in particular and this trend could continue as wealth levels and demand for financial services products increases over the medium term.
Despite its recent share price rise, HSBC trades on a fairly modest valuation. It has a price-to-earnings (P/E) ratio of 14.7 and yet is expected to grow its bottom line by 8% next year. Both of these figures are impressive and suggest that its stock price could continue to outperform the wider index.
In addition, the bank could prove to be one of the best income stocks around during the course of the next few years. With inflation moving higher and interest rates still at a historic low, the company's dividend yield of 5.3% could become increasingly popular. That's especially the case since dividends are covered 1.3 times by profit. And, with HSBC having exposure to markets which could positively catalyse its earnings prospects, a higher dividend could be on the cards in future years.
Of course, HSBC is not the only momentum stock which could be worth buying right now. Reporting on Friday was global aviation services group Air Partner(LSE: AIR), which has risen in value by 16% in the last six months.
Its pre-close trading statement showed that it has made a strong start to the year, with pre-tax profit expected to be 33% higher than in the previous year on an underlying basis. Its Broking division has performed well across all of its product lines, while the Consulting & Training division is also delivering solid results.
Looking ahead, Air Partner is expected to report a rise in its bottom line of 9% next year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 1.6, which suggests they could deliver strong capital growth. Therefore, while its end markets are highly cyclical, the company appears to have a sufficiently wide margin of safety to merit purchase at the present time.
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Peter Stephens owns shares of HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. 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