With Brexit more uncertain than ever, should you be holding your cash spare and waiting for market conditions to improve?
Personally, I’ve been buying shares recently. In my view, last year’s market drop has left a number of companies trading at attractive prices. My purchases have been split between international stocks I expect to be Brexit-proof and UK businesses I hope will recover after Brexit.
Today I want to look at one stock from each camp. One is a share I already own and the other is one I’d be happy to buy.
A Brexit-proof buy?
My first pick today is Anglo-Asian banking giant HSBC Holdings (LSE: HSBA). This £128bn firm makes about 90% of its profits in Asia. According to the most recent figures available, about 65% of the bank’s accounts are in the UK or Hong Kong. Of the remainder, only 7.5% are in other European countries.
From what I can see, leaving the EU is unlikely to cause serious problems for HSBC.
A rock-solid 6% income
The HSBC share price has fallen about 18% over the last year, but the bank’s performance has continued to improve. Return on average shareholders’ equity — a key measure of profitability — rose from 8.2% to 9% during the first nine months of the year.
The balance sheet appears strong too. The bank’s regulatory Common Equity Tier 1 (CET1) ratio was 14.3% at the end of September, well above the 9.5% minimum required by regulators.
The stock’s fall over the last year has improved the value available to new buyers. The shares currently trade in line with their last reported book value of $8.10 (c.633p) and offer a well-covered dividend yield of 6%.
In my view, the shares are an excellent buy for income. If the global economy remains stable, I think there’s a good chance HSBC will outperform the FTSE 100 in 2019.
Dividend + growth
HSBC may get bigger. But its size means that it’s unlikely to be a standout growth stock. Fortunately there are some excellent smaller financial firms on the UK market which I believe have good growth potential.
One of my top picks, which I own myself, is small-cap fund manager Miton Group (LSE: MGR). The firm’s fund management is overseen by well-known small-cap specialist Gervais Williams, who also has an 8.9% shareholding in the firm.
The Miton share price has fallen by nearly 30% over the last six months as investors priced in a weaker performance due to market falls. Figure released by the company today show that the value of its assets has fallen, with net inflows of £1,019m in 2018 partially offset by £466m of investment losses.
However, Miton’s investment style is mainly long term, so I don’t think these short-term falls should be a concern. We’ve already seen the market start to bounce back in 2019. Looking ahead, I think the group’s £25m cash balance and solid track record should pave the way for further growth.
Miton shares currently trade on 12 times 2018 forecast earnings, with a 3.4% yield. That seems good value to me, given that the group’s cash balance covers nearly 30% of the share price. I’d be happy to buy more.