Why Is Standard Chartered PLC So Cheap?

China is keeping the Standard Chartered PLC (LON: STAN) price down.

| 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.

In good economic times, we really wouldn’t expect to see shares in our top banks valued at much below the long-term FTSE 100 average of around 14, would we?

I wouldn’t, and it came as quite a surprise to me to see Standard Chartered (LSE: STAN) on a forward price to earnings (P/E) ratio of just 10.6 based on forecasts for the year to December 2014. What’s more, with earnings per share (EPS) forecast to keep rising, that would drop to 9.7 based on 2015 predictions.

Unscathed

Standard CharteredAnd this is for one of the few banks that sailed through the credit crunch pretty much unscathed. In fact, until the share price went into a slide early in 2013, it was nicely ahead of the FTSE over 10 years.

Should you invest £1,000 in Standard Chartered right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Standard Chartered made the list?

See the 6 stocks

The reason behind Standard Chartered’s survival is the same one that underlies the recent fall in value — China. With around a third of its profits coming from Hong Kong, the bank is one of the ones that would be hit by a credit crunch in the People’s Republic. And with China’s property market showing signs of a correction, and lending figures hitting dangerously high levels, it could happen.

But how is the bank doing in itself?

Growth story

In 2013, pre-tax profit fell a little, dropping 7% to $6,958m, and normalised earnings per share dipped 9%. But the dividend was upped by 2% to yield 3.8%, and forecasts suggest a consistent 4% or better over the next few years with earnings set to rise again.

And chairman Sir John Peace told us that Standard Chartered “remains an exciting growth story“, saying “We are focused on driving profitable growth, delivering further value for shareholders. The Group has an excellent balance sheet, remains well capitalised…“.

And that’s quite a bit different to the state of the UK’s banks before the crunch hit. In fact, it’s partly because of the Western collapse that Standard Chartered finds itself in a healthy position to withstand a downturn — the post-crunch recapitalisation of the banks has made it stronger.

Bargain?

Analysts don’t seem to share the fear at the moment, with steady earnings rises forecast as far out as 2017 (though later figures are, of course, very tentative).

But with those well-covered dividend yields of 4% set to continue, and the World Bank still expecting the Chinese economy to grow by 7.4% in 2016, I reckon the fears are overdone.

And I think that makes Standard Chartered cheap right now.

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

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 in Standard Chartered or Tesco. The Motley Fool owns shares in both.

More on Investing Articles

Investing Articles

Here’s how to produce a £1,400 second income from a £20k ISA in the next year

Harvey Jones says it's possible to generate a second income of £1,400 from this year's Stocks and Shares ISA. It…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

The BP share price keeps falling. But should I put the energy giant in my SIPP?

Our writer looks at the recent BP share price performance and considers whether it would be a good addition to…

Read more »

Investing Articles

How much would an ISA investor need for an early retirement?

Even with the rising cost of living, regular investment in a Stocks and Shares ISA could help Britons retire before…

Read more »

Investing Articles

Could the Tesla share price really fall to $120?

The Tesla share price has collapsed since Trump took office, and the news just keeps getting worse for Elon Musk’s…

Read more »

Investing Articles

2 UK stocks and funds to consider buying during this market downturn!

A diversified portfolio of UK stocks and other assets can deliver excellent long-term returns even after periods of severe volatility.

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

£10,000 invested in Alphabet stock 1 month ago is now worth…

Alphabet stock is a major casualty of Trump’s trade policy, with investors betting on reduced demand for advertising, among other…

Read more »

Investing Articles

Want a comfortable retirement? Here’s how much you need in your SIPP

The SIPP is a great vehicle for confident investors to build their personal pension over time and eventually use that…

Read more »

Investing For Beginners

3 ways I try to spot cheap shares during a stock market crash

Jon Smith talks through his process of filtering for cheap shares at a time when simply buying anything isn't the…

Read more »