How HSBC Holdings plc And BP plc Could Resurge In 2016

Prospects could improve for battered HSBC Holdings plc (LON: HSBA) and BP plc (LON: BP) during 2016

| 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.

Like many other investors, I want to look after my hard-earned financial gains without risking the lot on casino-style shares that promise big gains but which also come with big risks.

That’s why I’m drawn to large-cap firms, particularly those in the FTSE 100. These leviathans tend to be mature in terms of their growth curve, their business model is proven, their balance sheets are often robust, and such companies have often stood the test of time.

Lower-risk investing?

I don’t expect to shoot the lights out with big caps, but I am looking to protect the downside to my portfolio. Master investor Warren Buffett’s first rule of money management is, famously, “don’t lose”‘, and I know I’m not alone in looking to the main index on the London market to try to achieve that aim.

Should you invest £1,000 in BP 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 BP made the list?

See the 6 stocks

FTSE 100 firms can put on a surprising turn of speed, so outsized performance — or underperformance — is still possible within the index. After all, in terms of the range of sizes of firms it contains, the FTSE 100 is deep — the firm with the smallest market capitalisation comes in at around £3 billion, while the largest is about £106 billion. There’s considerable scope for a growing FTSE 100 company to rise in the ranks of the index, so investors can theoretically enjoy the benefits of size, along with potential capital gains too.   

Growth isn’t the only model available in the FTSE 100 though. The index also contains many cyclical firms whose fortunes tend to ebb and flow in lock step with economic cycles. That effect can lead to undulating share prices, and timing the jump into and out of those firms can be just as lucrative as picking a grower and sticking with it. With a shorter term swing-trading strategy in mind, I’m looking at two of the largest constituents of the FTSE 100, which also happen to be amongst the most cyclical — banking firm HSBC Holdings (LSE: HSBA) and oil company BP (LSE: BP).

A disappointing year

Despite recent bounces in their share prices, 2015 has been a disappointing year for investors in HSBC and BP — HSBC is around (12%) down since January and BP is flat. As such, and bearing in mind that both firms have been under the hammer for some considerable while, I’m tempted to look for contrarian opportunity — maybe 2016 will be the year that BP and HSBC really swing back with a vengeance. Riding out any such cyclical up-leg in these firm’s fortunes could be profitable.

In order to make a successful contrarian investment I think it’s necessary to look for three things:

1) a share price that has fallen,
2) operational difficulties, and
3) a low, or fair, valuation.

I’m seeing all three conditions satisfied with BP and HSBC. However, there’s also a fourth, and essential, condition that relates to timing a jump into a contrarian position and that is,

4) Evidence that conditions can reverse.

What can go right from here?

I reckon a reversal in a firm’s share price can presage an improving outlook — share prices seem to have a mystical, magical ability to see ahead of the facts. Both BP’s and HSBC’s share prices have turned upwards recently, so that’s a good sign.

BP is getting to the stage where it can put its Gulf of Mexico disaster behind it, but the big operational drag now relates to the fallen price of oil, which is causing the firm all kinds of headaches as the company’s ability to invest is crimped due to falling cash flows.

That said, at some point oil will reach its floor and that might be good enough to justify an investment in BP. Stability in the price of oil will allow the firm to achieve equilibrium in its operations, which can be tailored to fit. If we are there already with the oil price, 2016 could prove to be a good year for BP’s shareholders.

HSBC’s troubles relate mainly to weakness in its core Asian markets and regulatory headwinds. I’m encouraged by the governor of the Bank of England, Mark Carney’s, recent comments where he said his job on raising capital requirements for banks is nearly done. Maybe that’s a sign that regulatory pressures might already have peaked since last decade’s credit-crunch. On top of that, at some point Asian markets might pick up. Any improvement from here would be good for HSBC, maybe 2016 will be the year that starts to happen.

Should you buy BP now?

Don’t make any big decisions yet.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — has revealed 5 Shares for the Future of Energy.

And he believes they could bring spectacular returns over the next decade.

Since the war in Ukraine, nations everywhere are scrambling for energy independence, he says. Meanwhile, they’re hellbent on achieving net zero emissions. No guarantees, but history shows...

When such enormous changes hit a big industry, informed investors can potentially get rich.

So, with his new report, Mark’s aiming to put more investors in this enviable position.

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation 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.

Kevin Godbold 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.

More on Investing Articles

Investing Articles

At a 52-week low but forecast to rise 73%! Is this growth share the FTSE’s top recovery play? 

This FTSE 100 growth share has taken an absolute beating over the past two years but Harvey Jones says the…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Investing Articles

Is a £333,000 portfolio enough to retire and live off passive income?

A third of a million pounds can generate a serious amount of passive income, but relying on this sum alone…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing For Beginners

Why FTSE 100 investors should pay attention to ‘Liberation Day’

Jon Smith explains why the upcoming tariff announcement from across the pond could have an impact on the FTSE 100,…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

Here’s why Nvidia stock fell 13% in March

The Nvidia stock price rise was looking unstoppable. Should investors now be wondering if the same might be true of…

Read more »

US Stock

It’s ISA deadline week! Here’s my 3-step game plan

Jon Smith tries to calm the hype around the last minute ISA rush to buy stocks and explains why he's…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »

Investing Articles

Up 19% in 2 weeks, can the Tesla share price rebound further?

Tesla's first-quarter delivery numbers came out today. Will they help persuade our writer to invest his money at the current…

Read more »