Shares in Standard Chartered (LSE: STAN) hit a six-year low of 868p in January, but have since climbed by 30% to their current level of around 1,130p.
The shares’ strong performance has been particularly noticeable in the last week, during which they’ve climbed 19%.
In this article I’ll explain why the share price has changed, but the facts haven’t, and ask whether the shares are now a buy or a sell.
A useful lesson
Very few institutional investors can buy or sell enough stock in a FTSE 100 firm to move the share price.
What really moves share prices at the big-cap end of the market are brokers’ upgrades and downgrades, and this is what’s happened to Standard Chartered recently.
On 18 March, broker Sanford Bernstein upgraded its view on Standard Chartered to outperform, and increased its target share price from 700p to 1,200p. Barclays also issued a positive update, and Standard Chartered’s share price started to motor, ending the day up by 8%.
The shares continued to edge higher and rose by another 6.4% on Monday, when the bank’s own house broker, JPMorgan Cazenove, upgraded the bank to overweight and increased its target price to 1,250p.
The main thrust behind the JPMorgan Cazenove’s view was that the bank’s incoming chief executive, Bill Winters, may decide to move Standard Chartered’s headquarters out of the UK, to Singapore or Hong Kong, where the bank could save up to $550m annually in tax.
What about the fundamentals?
City analysts are generously paid for trying to predict the future, but it’s an unreliable art at the best of times.
A move abroad for Asia-focused Standard Chartered is by no means certain, as the bank’s size means that it may well decide that the UK remains its most sensible home, despite its focus on Asia.
Here at the Fool, we like to focus on fundamental value when picking stocks — and the good news is that Standard Chartered scores highly in this department too.
Standard Chartered’s stock currently trades on an undemanding 2015 forecast P/E of 11.2 and offers a 2015 prospective yield of 4.4%, despite a recent 10% cut in consensus dividend forecasts.
The bank’s shares trade slightly below their book value, and in my view Standard Chartered remains a long-term buy for value investors, despite the risk that incoming chief executive Bill Winters will decide to strengthen the bank’s balance sheet with a rights issue.