This article is the latest in a series that aims to help novice investors with the stock market. To enjoy past articles in the series, please visit our full archive.
The Beginners’ Portfolio is a virtual portfolio, which is run as if based on real money with all costs, spreads and dividends accounted for.
We had some cash sitting in the Beginners’ Portfolio from the sale of Vodafone, and combined with the dividends we had received so far that gave us enough for two new investments. Half of it has already gone to top up Rio Tinto, and for the other half I’m seriously considering a bank.
I know banks produce accounts that are fiendishly difficult to understand, but one of my favourite pieces of advice for beginners is “Don’t over-analyze”. So as long as the portfolio remains diversified, I think we could improve our prospects by adding a bank now.
I’ve narrowed it down to two — Barclays (LSE: BARC) (NYSE: BCS.US) and Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US).
Barclays
We’ve just had results from Barclays, and a decline in investment banking led to a quick fall in the share price of 3.5%, to 265p. Overall, the shares are just short of breaking even over the past 12 months.
But hopefully we’re coming to the end of an erratic couple of years, and there’s some serious growth currently forecast for the next two — Barclays shares are on a trailing P/E of 16 based on these latest results, but that should drop to under 8 within two years if those forecasts are close. Here’s what they look like…
| March | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2014 | 29.7p | +78% | 9.3 | 10.1p | +55% | 3.7% | 2.9x |
| 2015 | 35.6p | +20% | 7.7 | 14.2p | +41% | 5.2% | 2.5x |
Who wouldn’t want some of those recovering dividends?
Standard Chartered
My other choice — Standard Chartered — is rather different. Where Barclays and others were hammered by the banking crisis and recession in the Western world, Standard Chartered remained aloof, with the bulk of its business in the East and less than 5% of profit coming from Europe and the Americas.
But that advantage has turned a little sour as Chinese growth has faltered, and there are fears of a double-whammy from bursting property and lending bubbles. Current forecasts, which are perhaps optimistic on those counts, look like this…
| March | EPS | Change | P/E | Dividend | Change | Yield | Cover |
|---|---|---|---|---|---|---|---|
| 2013 | 125p | -9% | 10 | 52.8p | +2.9% | 4.3% | 2.4x |
| 2014 | 138p | +10% | 9.0 | 57.2p | +6.3% | 4.6% | 2.4x |
| 2015 | 150p | +9% | 8.3 | 61.9p | +8.2% | 5.0% | 2.4x |
With Standard Chartered shares down more than 25% in 12 months, those P/E valuations and dividend yields also look attractive.
But which is better?
We’re really comparing a proven current performance from Standard Chartered, together with the possible risk from China, against possible jam tomorrow from Barclays, but with the fear that the blighted bank is not properly back on its feet yet.
Which will we plump for? Watch this space!