Its often said that the best time to buy a share is when all the bad news is out and sentiment is at its lowest, and I think of that every time I look at HSBC Holdings (LSE: HSBA).
A couple of years of falling earnings and fears of a dividend cut have helped push the shares down 19% in the past 12 months to 455p. But earnings per share (EPS) only declined by 6% in 2015 after pre-tax profit stabilised. And EPS is actually expected to regain 4% in the current year and the analysts are getting a little bullish.
As for the dividend, yes I strongly suspect that forecast yields of 7.7% and 8% for this year and next arent sustainable at cover levels of around 1.3 to 1.4 times. However, that fear seems to be already in the price, with the shares trading on a forward P/E of under 10 and dropping to 9 on 2017 forecasts. And theres plenty of room to still leave a decent yield should a cut be needed.
The real problem
Of course, the elephant in the stock exchange is China and exposure to that troubled market is really whats holding HSBC back. Right now we have no idea of the level of bad debt HSBC could face should there be a run on banks operating there, and growth is slowing down. Having said that, economic growth of a bit less than 7% per year is still something most countries can only dream of.
But HSBCs decision to keep its headquarters in London was a positive sign. And if Chinese fears turn out to be overdone, HSBC could make a comeback. In fact, weve already seen the shares pick up 12% since 11 February.
Standard Chartered (LSE: STAN) is in a similar boat, with its shares down a massive 49% over 12 months to 473p. We dont have the same dividend threat to worry about. Thats because 2015s cash handout was slashed to yield just 1.7% after the bank crunched to an underlying loss of $834m, and its expected to drop as low as 1.2% this year.
Standard Chartered has been suffering big problems in Korea, and writedowns in Brazil and India added to 2015s woes. But the exit of much-criticised chief executive Peter Sands and chairman Sir John Peace could open the way for the new broom the company needs. On top of that, theres a return to profit forecast for this year, followed by a 70% EPS rise on the cards for 2017 which would drop the P/E to 10.
My trouble at this time of maximum pessimism is that I still feel pessimistic about Standard Chartered, but Im getting a niggling feeling that I could be wrong and that the shares might be as low as theyre going to get.
The problem at Aberdeen Asset Management (LSE: ADN) has been net outflows of investors cash for 11 quarters in a row, largely because its funds focused in emerging markets (including China, naturally) have been performing poorly.
But outflows were falling at first-quarter time in December, down to 9.1bn from 12.7bn in the previous quarter. And assets under management actually picked up a bit, to 290.6bn from 283.7bn three months previously. Chief executive Martin Gilbert said:Our increasingly diversified business model and strong balance sheet mean we are well placed to navigate the current difficult market conditions.
The shares are down 44% over 12 months to 270p, but again theres been an uptick since 11 February. And the forecast dividend yield has risen to 7.2%. But that would be barely covered by earnings so theres again a real risk of a cut. And again, I see the fear of a cut already being built into the share price, with a forward P/E of 12.5 for 2017 really not commensurate with that years forecast 7.3% yield.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Aberdeen Asset Management 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.