Could Hargreaves Lansdown PLC Be A Better Buy Than HSBC Holdings plc?

Investors looking for reliable returns may want to consider FTSE 100 candidate Hargreaves Lansdown PLC (LON:HL), rather than HSBC Holdings plc (LON:HSBA).

| 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.

Are big banking stocks cheap for a reason? More than five years after the financial crisis, banking shares continue to fall and have failed to win back the confidence of investors.

An alternative way to gain exposure to the financial sector is with ‘pick and shovel’ stocks. These are companies that provide the tools and platforms necessary for investors to access financial markets. One of the biggest and most successful in the UK is Hargreaves Lansdown (LSE: HL).

Hargreaves shares fell by around 4% after the firm published its interim results today, but the firm’s stock is still worth 20% more than it was 12 months ago. I believe Hargreaves could still have a lot to offer investors.

Should you invest £1,000 in Burberry Group Plc 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 Burberry Group Plc made the list?

See the 6 stocks

To highlight the contrast between Hargreaves’ performance and that of big banks, I’ll also take a look at HSBC Holdings (LSE: HSBA). Will the UK’s largest bank make money for patient investors, or could it remain a value trap for years to come?

Hargreaves Lansdown

Hargreaves results showed that it can still attract new customers in falling markets. The firm signed up 47,000 new customers during the last six months of 2015, compared to 23,000 during the same period the previous year. Net new business inflows for the period were £2.8bn, up from £2.25bn previously.

The influx of new business means that despite a 3.5% fall in the FTSE All-Share, the value of Hargreaves’ assets under management (AUM) rose by 7% to a record high of £58.8bn at the end of 2015. Pre-tax profits rose by 6% to £108m for the half year, while the interim dividend was increased by 7% to 7.8p.

After last year’s dip in profits, Hargreaves appears to have returned to growth. This has been achieved without sacrificing the firm’s incredible profit margins. Hargreaves reported an operating margin of 67.9% for the first half of its current financial year. This is down slightly from 70.7% last year, but in line with last year’s full-year figure of 67.3%.

Hargreaves’ share price has risen by 130% over the last five years. As you’d expect, this stock isn’t cheap and currently trades on a 2015/16 forecast P/E of 34. However, the dividend yield is still quite attractive. The shares are expected to yield 2.7% this year, rising to 3.0% in 2016/17.

HSBC: does size matter?

With a market value of £92bn and expected profits of $15.5bn for 2015, HSBC dwarfs Hargreaves.

Size is no guarantee of positive returns, however. HSBC has delivered an average annual total return of -2.6% per year over the last five years. By contrast, Hargreaves has managed a stunning average total return of 22.5% per year over the same period.

I’m not sure that there’s any evidence that the tide is turning for HSBC. The latest analyst forecasts suggest that HSBC’s earnings per share may fall by 3.4% this year. The dividend is expected to remain flat, at $0.51 per share.

HSBC only seems to have two attractions. The stock looks cheap, on 8.7 times forecast earnings, and offers a huge 7.5% dividend yield, which looks pretty safe to me. For pure income investors or value buyers with a long timeframe, I’d back HSBC.

However, if you’re looking for a decent total return with real growth potential, then Hargreaves could be a better buy than HSBC.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Burberry Group Plc 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 Burberry Group Plc made the list?

See the 6 stocks

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.

Roland Head owns shares of HSBC Holdings. The Motley Fool UK has recommended Hargreaves Lansdown and 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

Just released: our 3 top small-cap stocks to consider buying in April [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

Here’s why Tesla stock just rocketed 22.7%! Is it time to buy?

This writer wonders whether the news that sent Tesla stock soaring yesterday is a true gamechanger for the electric vehicle…

Read more »

Investing Articles

2 quality UK stocks to consider buying as share prices rally

With UK stocks moving higher, it might look as though investors with cash on hand have missed their chance. But…

Read more »

Investing Articles

How much £10,000 invested in Lloyds shares is forecast to be worth in 12 months

Harvey Jones is looking past today's stock market volatility to see where Lloyds shares may stand in a year's time.…

Read more »

Investing Articles

How Warren Buffett stays ahead of the stock market

When share prices fall, everyone suddenly wants to be like Warren Buffett. But what’s the secret to the Berkshire Hathaway…

Read more »

Investing Articles

Cheap UK dividend shares to consider buying right now

We're only just past the first quarter of 2025, but it already looks like the year could be another good…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

What the heck is going on with the Barclays share price now?

The Barclays share price surged 25% as the market open on 10 April. Once again, the volatility’s been driven by…

Read more »

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

What the devil’s going on with the HSBC share price?

The HSBC share price has actually been less volatile than some of its peers, despite its Chinese operations suggesting it’s…

Read more »