It may feel as though the present time is not a wise moment to buy shares, with US interest rates set to rise, China enduring a soft landing and the Eurozone still enduring a challenging period. However, the global economy continues to move from strength to strength, with the global financial crisis now firmly a thing of the past and the downside risks to shares being a lot less as the global banking sector is far better capitalised and in a stronger state than it has been for many years.
And, within the banking sector, Santander (LSE: BNC) (NYSE: SAN.US) stands out as a very appealing investment, since it offers a significant level of global diversity and growth opportunity. For example, Santander may have a large presence in Europe, but it balances this with operations across the globe that, alongside a capital raising in recent months, make it a relatively robust and reliable operator.
Furthermore, Santander offers good value for money, with its shares trading on a price to book (P/B) ratio of around 1.2. This indicates that there is upward rerating potential – especially as the global economy continues to recover. And, with Santander set to increase its bottom line by 13% this year and by a further 11% next year, such a low valuation could prove difficult to justify over the medium term and provide Santander’s investors with at least 20% upside.
Meanwhile, finance sector peer RSA (LSE: RSA) is also making changes to its strategy. Just as Santander raised capital recently, RSA has been restructuring its business to provide greater efficiencies, lower risks and greater returns. And, looking ahead, this is set to have a positive impact on its bottom line, with RSA’s earnings due to rise by 12% next year. And, with its shares trading on a price to earnings (P/E) ratio of 14, there seems to be at least 20% upside while the FTSE 100 trades at a premium of around 10% to RSA at the present time.
Of course, an improving global economy is also great news for car sales and, as a result, automotive dealer Inchcape (LSE: INCH) has grown its bottom line in each of the last five years. And, looking ahead, double-digit growth is being forecast for next year, too. Despite this, Inchcape trades on a price to earnings growth (PEG) ratio of just 1.4, which indicates that there is at least 20% upside in its valuation. In fact, with the FTSE 100 having a P/E ratio of less than 16 and an annual growth rate in the mid to high single digits, Inchcape’s PEG ratio could move up by a third and still be roughly in-line with that of the wider index.
Clearly, talk of an improving global economy includes the UK and, as such, support services provider Mitie (LSE: MTO) has a bright future. In fact, even while the UK economy was posting a disappointing rate of growth during the credit crunch, Mitie was still able to deliver positive earnings growth.
Looking ahead to next year, its bottom line is expected to grow by 8%. While the FTSE 100 has a P/E ratio of 15.5 (as mentioned), Mitie’s P/E ratio of 12.5 has scope to rise by at least 20%, since this would still have the company trading at a small discount to the wider index, with equally strong (and arguably more reliable) growth prospects.