Within the FTSE 100 there are numerous opportunities at the present time for investors to buy high quality companies at very appealing prices. A notable example is HSBC (LSE: HSBA), which currently trades on a price to earnings (P/E) ratio of just 10.
Clearly, HSBC is struggling to deal with a cost base which it could be argued has got out of control. Operating costs are at their highest ever level and, while many of its peers have been successfully able to reduce their overheads in recent years, HSBC has become relatively inefficient. However, this is set to change with a major cost-cutting programme which will involve many thousands of the bank’s staff being made redundant.
As ever, the Asian economy holds huge growth potential within the banking space, with a rising middle class having relatively low exposure to savings products and loans. HSBC’s entrenched position within the Asian economy provides it with an excellent opportunity to deliver high levels of growth in the long run. And, in the meantime, the bank yields 6.4% from a dividend which is covered 1.6 times by profit and which is therefore highly sustainable even with earnings set to grow by just 2% next year.
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Similarly, house builder Persimmon (LSE: PSN) has highly appealing growth prospects. The UK housing market may well be massively overvalued but, with interest rates likely to remain relatively low, demand for housing is likely to remain high as people continue to rack up vast debts. As such, the outlook for Persimmon’s sales prices seems to be positive, which is a key reason why the company’s bottom line is expected to rise by 25% in the current year and by a further 10% next year.
Many investors, though, will be put off buying Persimmon as a result of its share price growth of 414% in the last five years, with it being argued that it is now overvalued and due a pullback. However, Persimmon still trades on a P/E ratio of just 11.4 and, with the company’s shares yielding just under 6%, it seems to be relatively cheap and capable of further gains in the coming years.
The same could be said for ARM (LSE: ARM), with the intellectual property company offering a high level of sustainable growth over the long term. The increasing popularity of smartphones across the developing world is a key reason why the company’s bottom line is expected to rise by 68% this year and by a further 17% next year. And, with ARM’s shares trading on a price to earnings growth (PEG) ratio of just 1.6, they appear to offer excellent capital gain potential in future.
Clearly, ARM is becoming a more mature company and, as a result, it is forecast to increase dividends per share at an annualised rate of 21.5% during the next two years. This means that it is due to yield 1.1% next year and, while relatively low, further increases in dividends are on the cards as ARM has a payout ratio of just 29% which, when combined with its high earnings growth rate, indicates that it could become an appealing income play.
