Standard Chartered(LSE: STAN) andVirgin Money(LSE: VM) are two very different banks. Standard is a major player on the international finance scene, while Virgin is a relatively small UK upstart.
Individually, the banks appeal to a different type of investor but when combined, they could make a great mini-portfolio.
Value play
Standard is a bank in crisis. Falling profits, rising impairment changes, slowing emerging market growth and disagreements amongst the banks management team have all weighed on Standards share price over the past 12months.
But now Standard has finally admitted that itis in trouble, and management has started to make changes across the group. Underperforming divisions are being closed, costs are being cut and a new CEO is set to join the group. Theres also talk of a right issue to stabilise the banks balance sheet.
Standards troubles have depressed the banks valuation to a lowly 11.6 times forward earnings.Still, City analysts believe that Standards earnings per share will expand by 14% during 2016, which implies that Standard is trading at a forward P/E of 10.3. Moreover, Standard currently offers shareholders a dividend yield of 4.6%.
Standard is a value play, although the bank is still in the early stages of its recovery plan, and there are many risks ahead. Thats why investors should reduce their risk by holding Virgin Money alongside Standard.
A growth play
Theres no other way of saying it; Virgin Money is a growth stock. The bank,which bought nationalised Northern Rock in 2011, has seen its share of the UK financial services market explode over the past four years. Underlying pre-tax profit for 2014 more than doubled year-on-year.
Virgins mortgage balances rose 11.8% during 2014, compared to the market average of 1.4%, while net lending expanded by 10.2% during the year.Credit card balances rose 41% andretail deposits ticked higher by 6%, to end the year at 22.4bn.
And Virgins success has a lot to do with the way that the bank is shaking up traditional banking methods. For example, Virgins opening hours are designed to help customers withbusy working schedules. Additionally, the bank offersmore competitive products and more customer-centric services.
City analysts believe that these initiatives could see the banks earnings per share rise by 60% by 2016 thats an average annual growth rate of around 27%.
Unfortunately, for this kind of growth you have to pay a premium. Virgins shares are currently trading at a forward P/E of 18.5, which may seem expensive but when you factor in the banks growth, this is a premium worth paying.
Dynamic duo
So, as Virgin shakes up the UK banking market, shareholders should profit from Standards recovery.
Combining Standard and Virgin in your portfolio gives you two plays on the banking sector a recovery play and a growth play. Combining the two banks in your portfolio will also reduce risk allowing you to profit from Virgins growth and Standards recovery while sleeping soundly at night.
And analysts here at The Motley Fool have just identifiedfive more defensive opportunitiesthat could make you rich. All five of the stocks chosen offer a mix of robust prospects, illustrious histories and dependable dividends and arerevealed withinthis free, limited edition exclusive wealth report.
But hurry, the report won’t be around forever.Justclick hereto download today — what have you got to lose,it’s free!
Rupert Hargreaves 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.