I’ve already used my £20,000 Stocks and Shares ISA allowance this year. But if I still had money to invest, I’d make the most of the uncertainty around the banking sector to pick up some bargains in early April.
The collapse of SVB Financial has left some bank stocks significantly undervalued. But there are also opportunities that are jumping out at me elsewhere.
Banks
I think there are great opportunities in both UK and US banks at the moment. Top of my list of stocks to buy if I was still looking to use my ISA allowance would be HSBC (LSE:HSBA).
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HSBC just bought SVB’s UK franchise for £1. But SVB’s UK operations weren’t in the same distress as their US counterparts – they had adequate capital and were making money.
That means that HSBC might just have struck an incredible deal. With the company’s share price falling yesterday as a result, I’d be taking advantage of the fear by buying the stock.
I’m convinced that the crisis around SVB is causing unnecessary fear around bank stocks. But it’s worth noting that there’s also some genuine risk.
Rising interest rates have been helpful for bank margins over the last 12 months. But if higher rates cause a recession, then loan defaults might become a significant headwind for lenders.
The recent fall in bank stocks goes some way to offsetting this risk though. HSBC shares are much more attractive today at £5.68 than they were a month ago at £6.09.
Given the chance to buy HSBC at today’s prices, I’d take it with both hands. It looks to me like the kind of opportunity that doesn’t come around very often.
UK shares
I also think there are great opportunities elsewhere in the UK. As uncertainty around the banking sector leads to falling stock prices, the rest of the market has been feeling the effects.
Shares in FTSE 250 company Diploma (LSE:DPLM), for example, have fallen by 6% over the last week. As a result, the stock trades at its lowest levels since the start of the year.
It isn’t as well-known as some, but I think the business is terrific. The company is a distributor of specialised industrial components and it has some incredibly attractive economics. As a distributor, it doesn’t have expensive facilities to maintain, which keeps costs down and results in impressive returns on invested capital.
While its focus on indispensable and inexpensive components gives it some protection, Diploma is far from immune to a cyclical downturn in the economy. I see this as the biggest risk for the business.
Again, though, I think that the fall in the company’s share price means the stock is trading below its intrinsic value. That’s why I’d look to buy it in my Stocks and Shares ISA.
