The last three months have been hugely positive for investors in HSBC (LSE: HSBA) (NYSE: HSBC.US). Thats because shares in the globally diversified bank have risen by almost 5% during a time when the FTSE 100 has experienced something of a wobble; falling by 4.5% during the same time period.
However, there could be further gains for investors in HSBC to look forward to. Moreover, it could help your to retire rich. Heres how.
Despite rising strongly in recent months, shares in HSBC still offer superb income potential. For example, they yield a hugely appealing 5% at a time when the FTSE 100s yield is 3.5% and the inflation rate is less than 2%. As a result, and with interest rates set to rise at only a gradual pace over the medium term, HSBC could prove to be a very lucrative income play.
Although the forecast growth rates on offer at HSBC are lower than many of its banking peers, it must be remembered that HSBC remained profitable throughout the credit crunch. As a result, its earnings profile appears to be more resilient and more consistent than many of its peers. So, while growth in earnings of 3% in the current year and 6% next year may not sound too impressive, it is very much in-line with the wider index and shows that HSBC can deliver upbeat levels of reliable growth.
Although its growth rate is in-line with that of the wider market, HSBCs valuation is much more attractive than that of the FTSE 100s. For example, while the FTSE 100 has a price to earnings (P/E) ratio of 13.2 (which in itself is relatively attractive), HSBC trades on a P/E ratio of just 11.7. This shows that there is considerable potential for an upward revision to its rating, which would be great news for shareholders in HSBC.
Clearly, HSBC has a large global footprint. As has been shown in recent years, this gives it much greater stability than its UK/European-focused peers and, perhaps more importantly, allows it to tap into a stronger growth rate on offer in Asia.
Of course, the Chinese growth story in particular is likely to include a number of lumps and bumps that investors in HSBC should be well aware of. However, it also offers tremendous growth potential over the medium to long term especially as demand for new loans increases due to the country shifting towards a consumer-led economy.
This means that, as well as a top-notch yield, attractive valuation and relatively reliable earnings, HSBC has a very bright long-term future, too. As such, it could help you retire rich.
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Peter Stephens owns shares of HSBC Holdings. 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.