Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) has had a testing 12 months, but you might find its cheaper valuation tempting. Here are five ways it could make you rich.
1) Because you’re buying it at a discount
One year ago, shares in Standard Chartered would have cost you 1,643p. Today, you pay around 1,239p — that is 25% less. I don’t know about you, but I like buying things at a fat discount. Especially shares. The question you might want to ask yourself is this: has it further to fall? The answer is: nobody knows. All we know is that it is 25% cheaper to buy than it was 12 months ago. If you think this is a bank worth buying, that has to make it 25% more tempting.
2) By being brave
Standard Chartered is in the teeth of the current emerging markets storm. Despite its London listing, it does 90% of its business in Africa, Asia and the Middle East. That largely explains its share price slump. The last 12 months have been rotten for emerging market investors. China is down 10%, India 13%, Russia 18% and Brazil a whopping 30%. Most investors are running scared, but history says that is the best time to buy. Then you have to be patient, and wait for the recovery. At 9.1 times earnings, against 13.8 for the FTSE 100 as a whole, that buying opportunity could be upon us. HSBC Holdings, which is also exposed to a China crisis, trades at 14 times earnings. It is a risk, no question about it. But it could also be rewarding.
3) The rumour mill could be wrong
Ugly rumours abound about Standard Chartered. Some say it is sitting on a barrel-load of toxic loans, others suspect it is heading for a rights issue. The unexplained departure of finance director Richard Meddings has added to the uncertainty. So far, these remain ugly rumours. Management insists the bank’s balance sheet is “highly liquid, conservative, and well diversified by product, by industry and by geography”. If management is telling the truth, Standard Chartered should muddle through its current worries, and you’ll be glad you dived in at this dangerous moment.
4) By waiting
On the other hand, the rumours could be true. Given the wider (and sadly justified) suspicion about banks, there may be skeletons swinging in Standard Chartered’s closet. Its image as the good bank died last year, when it was slapped with a $667 million US fine for sanctions busting and money-laundering. If you suspect more bad news is to come, that doesn’t mean you should give up on the stock. Watch and wait, there could be an even better buying opportunity ahead. The cheaper your entry point, the better the chance for making big money in the end.
5) By building a brighter future
By its own admission, Standard Chartered has been through a “challenging” time. Yet recent problems, including a $1 billion write-off in Korea, rising impairments and adverse currency movements, are all reflected in the share price. As the share price has fallen, the yield has risen to 4.1%, beating the FTSE 100 average of 3.59%. By December 2015, that is forecast to hit 4.8%.
Earnings per share fell 8% last year but the future looks brighter, with a forecast 10% rise both in 2014 and 2015. Some of its key markets are growing strongly, notably Hong Kong and Africa. By building up your position during the current troubles, Standard Chartered could make you rich in the end. Are you feeling brave?