Less than a year ago, in August 2021, I wrote an article on the FTSE 100 banking corporation HSBC (LSE: HSBA) with a question in the title. The question was whether its share price could be expected to go back up to 600p, which is around the level it was at when 2019 ended. It was trading a little lower in early 2020, but the pandemic really dragged it down. When I wrote the article referred to here, it was down to around 400p.
Cautiously optimistic to completely bullish
I was cautiously optimistic about it, but did believe that it would take a while before it touched 600p again. Almost seven months down the line, turns out that I was right. The HSBC share price has indeed risen, but to 550p, which is still some way-off from its December 2019 level. The Evergrande fiasco in China (a big market for the bank) in August 2021, and the Omicron variant later in November, have quite likely held the stock back so far.
But this is only half the story. Later on last year, I turned bullish on the stock. Fears of a spread of Evergrande’s troubles subsided, the pandemic showed signs of significant improvement and the bank’s results were strong too. By that time, my sense was that its share price could double, based on its prospects and relative undervaluation. It has been four months since, and the HSBC share price has made rapid strides. It is up around 25% since. And I continue to believe that the stock can not only touch 600p now, it can surpass it.
Positive outlook for the HSBC share price
And after its latest results, I think it is clear that the bank is well on its way to rising far more. For the full year 2021, it reported a 75% increase in net earnings from the year before. In the final quarter of the year, its earnings have almost doubled.
It has also decided to pay a second interim dividend. For 2021, its total dividend payout per share is at 18p at today’s exchange rate of the pound versus the US dollar. This translates into a dividend yield of 3.2%, which is among the better ones in the banking set. It is however, still lower than the FTSE 100 average of almost 3.5%. This implies that there are plenty of other FTSE 100 stocks with higher dividend yields. So clearly, this is not the big reason to buy it. But, it does add to the potential returns from the stock.
What I’d do
The HSBC share price could still be impacted by negative events, though. For instance, the Evergrande overhang is still visible. It says that “Uncertainty remains given recent developments in China’s commercial real estate sector…” and also that “inflationary pressures persist in many of our markets”. Interestingly, inflation is a positive for banks so long as growth is strong, since it results in higher interest rates. But it is also increases costs and might just hurt business if it goes out of hand too. On the whole, though, the bank’s outlook is positive.
I am still quite bullish on the HSBC share price. I’d buy it in 2022, and before it rises too much.