Patience is one of the key attributes of a successful investor. The likes of US master Warren Buffett have been known to wait years for the right company at the right price.
Now, while buying stocks at a fair price will tend to pay off over the long term, we all love to bag a real bargain.
Today, Im going to tell you why I believe Standard Chartered (LSE: STAN) is currently in the bargain basement.
Asset valuation
Price-to-tangible net asset value (P/TNAV) is my number one financial metric for valuing banks. If you can buy 1 of assets for less than a pound, you should be on to a winner providing the value of the assets on the balance sheet fairly reflects their true worth.
Standard Chartereds TNAV per share at the last balance sheet date (30 June) was $16.47 equal to 10.30 at the current $/ exchange rate. The companys shares are trading at 9.40, so the P/TNAV is 0.91. Put another way, the market is asking you to pay 91p for every 1 of Standard Chartereds assets.
To put this into context, Standard Chartered is better value on a P/TNAV basis than Lloyds (1.49), HSBC (1.06) and Royal Bank of Scotland (1.00). Only Barclays (0.84) is cheaper.
At what price a bargain?
Standard Chartered, with its overwhelming focus on Asia and emerging markets, steamed through the financial crisis of 2008/9 largely unscathed. However, the companys growth has lately hit the buffers.
Profits fell in 2013, and are set to fall again this year. Bad loan impairments have been rising, there will be no quick fix for the companys struggling loss-making business in Korea, and across the group management is exiting non-core businesses, de-risking certain portfolios and reallocating capital.
Certainly, given the near-term pressures on TNAV, Id be looking for a discount at this point in time. However, lets not forget that it wasnt so long ago that Standard Chartered traded at multiple of TNAV, and that the company remains well position to benefit from the long-term growth story in Asia, Africa and the Middle East.
In a previous article, I said Id have Barclays currently the cheapest bank on asset valuation in the bargain basement on a P/TNAV of up to 0.9. Id find it hard, in the light of Standard Chartereds strong positioning and long-term prospects in high-growth markets, to demand a lower P/TNAV than for Barclays.
As such, with Standard Chartered currently trading on a P/TNAV of 0.91, I reckon the shares are just about in the bargain basement.
That’s my simplistic take on Standard Chartered. However, if you’re thinking about investing in banks, or already own shares, I would strongly urge you to expand your knowledge by reading the Motley Fool’s “Essential Guide to Investing in Banks“.
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G A Chester has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
