HSBC Holdings (LSE: HSBA) is a share I tipped to buy ahead of half-year financials released this week. It may have sunk in the immediate results aftermath, though this was a reflection of a wider slump-risk appetite across equity markets as US-Chinese trade tensions intensified. I’m also certain the shock sacking of chief executive John Flint did little to encourage demand for the stock, either.
Truth be told, however, Europe’s biggest bank put in another sterling set of financials in which it advised pre-tax profits jumped 18% for January-June to a shade below $10bn. In fact, HSBC’s post-release dip makes it even more of a brilliant buy, certainly in my opinion.
As well as carrying a forward price-to-earnings (P/E) ratio of 10.6 times the FTSE 100 bank also sports a gigantic corresponding dividend yield of 6.7%.
Digital love
Any stocks portfolio worth its salt has to include shares with decent exposure to emerging markets and, in my opinion, HSBC is one of the best. Banking product penetration remains low in these regions, giving the bank plenty of business to still go out there and win. And a combination of exploding population levels and rising individual incomes means its sales opportunities should continue to swell.
Even as economic growth is slowing in HSBC’s core Asian markets, these factors mean business at the Footsie firm continues chugging relentlessly higher. Revenues and pre-tax profits here rose 7% and 4% in the six months to June, a result that also paid testament to the huge investment it’s making to digitalise its operations.
The London bank’s vowed to spend $17bn on boosting its technologies to deliver future growth, and it’s not difficult to see why. Thanks to booming smartphone usage in Asia, management McKinsey & Company says the number of digitally-active banking customers in so-called Emerging Asia doubled between 2014 and mid-2018 and rose 1.2 times in Developed Asia.
In rude health
There are some clouds on the horizon for HSBC’s far-flung territories as those trade talks drag on and global interest rates fall, though in my opinion the long-term revenues outlook for the firm remains quite exceptional.
I would argue too, Smith & Nephew (LSE: SN) is another great share waiting to get rich from developing markets.
While the artificial limb and joint builder’s making brilliant progress across the globe, trade remains particularly explosive in these new territories — sales growth here rocketed 16.2% in the six months to June, underpinned by strength in China where turnover grew by around a third year-on-year.
Those same economic and demographic factors that are boosting HSBC make Smith & Nephew a great bet to deliver some seismic shareholder returns in the years ahead. But this isn’t the whole story. Indeed, this FTSE 100 firm’s commitment to hefty organic investment and pursuing an aggressive acquisition strategy is also boosting sales and helping it to outperform the market in core areas such as hip and knee implants.
Smith & Nephew’s a share in real demand right now, and its recent ascent to record highs leaves it dealing on an elevated forward P/E multiple of 21.7 times. I would argue a company of this calibre, and one which could make some titanic gains for you to retire on when the time comes, makes it worthy of such a premium.
