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When I bought HSBC (LSE: HSBA) shares in May, I knew I was coming late to the party. For years the FTSE 100 bank had been generating bumper profits, serving up juicy dividends and treating investors to generous share buybacks. And I’d missed out on the lot.
I can’t buy every stock. Happily, my own stake in blue-chip rival Lloyds Banking Group had been doing pretty nicely too. But I wanted more exposure to the sector, and thought Asia-focused HSBC would balance UK-centric Lloyds nicely.
Another top FTSE 100 bank
So when the HSBC share price fell more than 5% on publication of its Q1 results (5 May), I filled my boots. They weren’t the most dazzling results HSBC had served up lately, but they weren’t bad either.
Underlying revenue climbed 4% to $19.1bn, while underlying profit before tax was broadly stable at $10.1bn, dented by a 41% jump in credit impairments to $1.3bn.
HSBC still boasted bags of financial resilience, and I decided the selloff was a piece of knee-jerk silliness that the stock market gifts to alert investors from time to time.
Less than five months later, I’m up a modest 15%. These are early days, though. I plan to hold the shares for years, possibly for life, so I can wait. HSBC shares have soared almost 300% over five years, or more than 330% including reinvested dividends, at a rough guess.
Higher interest rates have boosted lending margins, while strong wealth management, capital returns and fee income also helped.
HSBC keeps delivering
HSBC’s second-quarter results (4 August) showed underlying revenue rising 7% to $19.0bn, while underlying profit before tax jumped 13% to $10.3bn, as net interest and fee income came in strong. Investors also enjoyed a fresh $1bn share buyback.
But where do the shares go next? I’ve been looking at broker forecasts, and I’m a bit underwhelmed. The most optimistic is Citigroup, which reiterated its 1,640p target last week (23 September). At 1,518p, that implies just 8% growth, if it comes off. I’d expected better.
Deutsche Bank is maintaining its 1,520p target, roughly where the stock stands today, while JPMorgan Cazenove has it lower at 1,450p. Is the party is over?
The global economy is bumpy right now, with Iran, inflation and the AI bubble all creating uncertainty. On the other hand, higher interest rates should help HSBC and other banks widen their margins.
I’m in for the long haul
The shares now trade on a price-to-earnings ratio of 16.5, so they’re more expensive than at the start of their stellar run. The trailing yield also slipped to 3.66%. My view? The next year could be bumpy, but I’m not worried.
HSBC may need to catch its breath, but I think it has plenty to offer for the long haul. Investors might still consider it today, or perhaps wait for a dip. Let’s see if we get one over the winter. In the meantime, there are plenty more FTSE 100 stocks I’d happily buy right now.
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Harvey Jones owns shares in HSBC and Lloyds.
This story originally appeared on Motley Fool
