3 Growth Picks For 2014: RSA Insurance Group plc, BP plc and HSBC Holdings plc

RSA Insurance Group plc (LON: RSA), BP plc (LON: BP) and HSBC Holdings plc (LON: HSBA) look set for growth.

| More on:

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.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The year just gone has seen mixed fortunes across the FTSE 100, but we’ve had some notable returns to health with some nice profits for investors. The makeup of the FTSE right now is intriguing in that in addition to the wealth of dividend-payers we’d expect from the UK’s top index, we also have some pretty good prospects for share price growth in 2014.

Here are three that I think should put on the pounds during the year:

RSA Insurance

RSA Insurance Group (LSE: RSA) shares were hit by the rebasing of the company’s dividend — from a yield of 8.7% for the year to December 2012, it was slashed to 5.8% in 2012 and there’s just 4.3% forecast for this year. But with hindsight, dividends had been overstretched for too long while earnings were falling, and the last couple of years of high dividends were barely covered.

RSA shares have also been trashed by alleged irregularities in its accounts in Ireland, which have led to the resignation of Irish chief executive Philip Smith and to an independent enquiry.

We’re looking at a predicted 48% fall in EPS for this year, giving us a P/E of 19 on today’s 92p share price. Forecasts have been downgraded to 2014, too, but still suggest EPS of around 12p per share with a 4.6p dividend — that would give us a P/E of just 7.7 with a dividend yield of 5%. And unless there are further issues unveiled in the ongoing investigation, which seems unlikely, that’s just too cheap.

I expect to see RSA’s share price rebounding nicely in 2014.

BP

What can we say about BP (LSE: BP) (NYSE: BP.US)? Well, the disastrous fallout from the Gulf of Mexico catastrophe really is coming to an end, and if there are any further surprises to come they’ll surely only be small ones.

Total costs have exceeded $40bn and BP has shed a whole load of assets to pay for it all, and the share price has suffered as a consequence. But today the company’s shareholder equity is back up close to 2005 levels, it’s set to record an EPS rise of better than 25% this year to put the shares on a P/E of 10 on the current price of 490p, and forecasts for 2014 suggest a further 15% strengthening in EPS to drop the P/E to 9. Dividends are still rolling in at around 5%.

As it happens, BP is valued only slightly lower than rival Royal Dutch Shell right now, and I think the sector as a whole is due for a rerating — I could see a good 20% or better rise for BP shares in 2014.

HSBC Holdings

And finally, the banks. A couple of years of lip-service to penitence seems to be paying off, and the once-reviled sector is coming in from the cold. Putting aside the bailed-out pair, which have already clawed their way back to respectable-looking valuations, my pick for growth in 2014 comes down to a battle between HSBC Holdings (LSE: HSBA) (NYSE: HSBC.US) and Barclays, and I’m going for the former.

Priced at 273p, Barclays shares are on a slightly lower valuation than HSBC — we see forecast P/Es of around 11 for the two banks for 2013, but Barclays drops to 9 for 2014 with HSBC on abut 10.5. But HSBC is expected to recover its EPS more quickly, and it’s offering a better dividend yield of around 5% with Barclays on a predicted 2.4% this year and 4% next.

Together, that makes HSBC my growth pick of the banking sector for 2014.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Alan does not own any shares mentioned in this article.

More on Investing Articles

Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Google office headquarters
Investing Articles

1 reason I like buying S&P 500 shares – and 1 reason I don’t

Will this investor try to improve his potential returns by focusing more on S&P 500 shares instead of British ones?…

Read more »

Young woman holding up three fingers
Investing Articles

3 SIPP mistakes to avoid

Our writer explains a trio of potentially costly errors he tries to avoid making when investing his SIPP, on an…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

Here’s how (and why) I’d start buying shares with £25 a week

Our writer uses his investment experience and current approach to explain how he would start buying shares on a limited…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Here’s my 5-step approach to earning passive income of £500 a month

Christopher Ruane explains the handful of steps he uses to target hundreds of pounds in passive income each month.

Read more »

Investing Articles

2 UK shares I’ve been buying this week

From a value perspective, UK shares look attractive. But two in particular have been attracting Stephen Wright’s attention over the…

Read more »

Investing Articles

A lifelong second income for just £10 a week? Here’s how!

With a simple, structured approach to buying blue-chip dividend shares at attractive prices, our writer's building a second income for…

Read more »

Investing Articles

Here’s how I’d use a £20k Stocks and Shares ISA to help build generational wealth

Discover how our writer would aim to turn a £20k Stocks and Shares ISA into a sizeable nest egg by…

Read more »