This isn’t an easy time to be a stock-picker, especially one focused on finding value within the FTSE 100 index. Thanks to Covid-19, there are several sectors (airlines, travel & leisure, etc) that are practically uninvestable right now.
Hence, my search for hidden value within the FTSE 100 has tended to concentrate on a few key sectors. I’ve been bargain-hunting mostly within the oil & gas, mining, and banking sectors. And yet prices keep falling, pushing these sectors further into bombed-out territory.
This FTSE 100 share is bombed-out
For example, take FTSE 100 behemoth HSBC Holdings (LSE: HSBA), whose shares keep dropping every time I rate them as a value buy. They’re down nearly 50% in a year.
Exactly a week ago, I claimed that HSBC shares were ‘as cheap as chips’ at 354.3p. Today, after unveiling half-year results, the FTSE 100 bank’s shares hover around 326p. That’s a further fall of 8% in a week, so now they must be even cheaper than chips, perhaps?
HSBC faces huge headwinds
As Europe’s largest bank and a leading lender in Asia, HSBC is suffering a perfect storm right now, thanks to these five factors:
- Being in the firing line of the emerging US-China ‘Cold War’.
- Concerns over a no-deal Brexit at the end of 2020.
- The impact of a second wave or rolling Covid-19 waves on lenders.
- The shape and pace of any post-Covid-19 economic recovery.
- Falling interest income due to zero or negative interest rates.
In short, now is not a great time to be a lender, never mind a FTSE 100 mega-bank with close to $3trn in assets.
Another FTSE 100 bank takes a beating
As for HSBC’s latest results, they make for grim reading, with hugely increased provisions against bad loans almost wiping out profits.
In the second quarter, HSBC set aside $3.8bn in loan-loss provisions, roughly $1bn more than analysts estimated. This takes the FTSE 100 firm’s loss provisions to $6.9bn over six months. For 2020 as a whole, total provisions could be as high as $13bn or as low as $8bn, the bank reckons.
For the half-year, HSBC’s reported revenues dropped by 8.9% year-on-year to $26.7bn. Reported profit before tax crashed by two-thirds (65.2%) to $4.3bn. Worse still, earnings per share at HSBC collapsed by three-quarters (76.2%) to just $0.10 (from $0.42). Ouch.
Hence, the FTSE 100 firm will accelerate its cost-cutting programme, including bringing forward the 35,000 job cuts already flagged up.
This FTSE 100 share is cheap
Today, HSBC shares dropped another 5% to 326p, their lowest since the darkest days of 2009. Before the global financial crisis, the FTSE 100 bank’s share price last plumbed these depths in 1996 – almost a quarter-century ago. As I said, they’ve fallen sharply in just a year and for the record, they’re actually down 49.6% over the past 12 months. So HSBC’s market value has halved, blowing up £70bn of shareholders’ capital in a year.
As a value investor, you have to ‘buy boldly when there is blood in the streets’. Things look bleak for this FTSE 100 share today, but it will bounce back. That’s why I would grit my teeth and fill my boots with HSBC shares today!