Benefiting from higher interest rates

First, Standard Chartered (LSE:STAN) has been benefiting from the continued rise in interest rates. This means that the bank may be able to charge customers more for mortgages and loans. 

Inflation also appears to be climbing, and this suggests that central banks around the world could continue their strategies of increasing interest rates. The purpose of this is to get the economy under better control.

For the six months to 30 June, the business reported that its net interest margin grew by 0.06% to 1.35%. This is essentially the difference between how much interest it pays customers who deposit cash, and how much it charges those who are borrowing money. 

The firm expects the net interest margin to reach 1.4% for the whole of 2022 and rise to 1.6% in 2023. As a potential investor, it’s possible I could benefit from this trend of rising interest rates during the next couple of years.

However, the firm has reasonable exposure to the Chinese real estate market. Given the vulnerability within that sector, Standard Chartered may take a hit if the market continues its decline.

Despite this, pre-tax profit for the six months to 30 June increased 7% and the business is embarking on a $500m share buyback scheme. It also paid an interim dividend of ¢4 per share.

Shiny profit margins

Next, Endeavour Mining (LSE:EDV) is a company I’m watching closely. The firm – an Africa-based gold miner – recently increased its full-year production guidance to between 1,315,000 and 1,400,000 ounces of gold when it released its interim results.

What I find impressive about this business is that it expects to report all-in sustaining costs of between $880 and $930 for the whole of 2022. Given that the current gold price is $1,727, this efficiency could translate into significant profit.

Furthermore, at the end of June, the company had operating cash flow of $553m. Its cash balance also increased by $141m to $217m. 

However, the firm operates in countries that may be politically volatile. Any escalation of tensions could result in conflict, potentially impacting mining operations.

On the flip side, if a recession is on the horizon, investors may flock to gold as a safe-haven investment. This could mean that the value of Endeavour’s produce rises, likely positively affecting company results. 

Overall, both of these businesses have posted strong results and may benefit from the broader economic environment in the future. To that end, I’ll add both firms to my portfolio soon.

Consistent profits

First, Antofagasta’s (LSE:ANTO) share price has been volatile in recent months. In the past three months, it’s down 21% and currently trades at 1,167p.

The Chile-based copper mining firm has been consistently profitable over the last five years, registering a pre-tax profit of $3.4bn for 2021.

It’s important to note, though, that this growth is not guaranteed in the future.

Furthermore, with its results for the six months to 30 June, the company reiterated its production guidance for 2022 of between 640,000 and 660,000 tonnes of copper. 

However, during this period revenue fell by around 30% to $2.5bn. In addition, core earnings declined by about 50% to $1.2bn.

Much of the fall can be attributed to a drop in the copper price, in line with other commodities. Also, a drought in Chile has negatively impacted mining operations as water is essential for these. 

It’s opening a desalination plant in the second half of this year, and this should greatly help the business to pick up production. 

In the long run, demand for copper could increase significantly because it’s an essential component in many products, including electric vehicles.

Banking on higher interest rates

Second, shares in Standard Chartered (LSE:STAN) are down about 6.25% in the last three months. At the time of writing, they’re trading at 588p.

The banking firm has been benefiting from rising interest rates. These are currently set at 1.75% in the UK. With inflation above 10%, it’s very likely that interest rates will move higher.

This is generally good news for the likes of Standard Chartered because it may be able to charge more for borrowing services. 

But it’s also worth noting that higher rates could be negative. With the cost-of-living crisis, potential customers may be put off taking on debt at more expensive levels. 

In its results for the six months to 30 June, however, the business reported that pre-tax profit was up 7% to $2.8bn. 

Furthermore, it announced that it’s embarking on a $500m share buyback scheme. It’s also paying an interim dividend of ¢4 per share. While this company may provide growth, it’s good to know that I could possibly derive income from the investment too.

Overall, these businesses may provide good opportunities if bought next month. While they face challenges, they’re both profitable and stable. To that end, I’ll add both firms to my portfolio next month and hold them for the long term. 

Let’s take a high-level tour of the complex world of valuation, uncovering some of the more promising value investment opportunities available.

What are undervalued stocks?

Undervalued stocks are businesses whose shares are trading below their underlying intrinsic value. With mood and momentum being the primary driving force behind stock prices in the short term, discrepancies between price and value occur constantly. And being able to identify such opportunities can be a highly lucrative endeavour.

These terms, “price” and “value” are often used synonymously in everyday life. But in the realm of finance, there is a stark difference between the two.

To quote famous investor Warren Buffett, “Price is what you pay. Value is what you get”. Buffett is probably one of the most successful value investors alive today. He made his multi-billion-dollar fortune by identifying strong businesses whose share prices were trading below the true worth of the underlying company and then investing in these undervalued stocks.

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Top undervalued shares in the UK 

Here are some of the top undervalued stocks on the London Stock Exchange.

Standard Chartered

Banking stocks typically outperform the market during times of higher inflation thanks to the subsequent boosts in interest rates, expanding lending margins. For many UK investors, Lloyds is often the go-to bank investment idea. However, Standard Chartered seems to be making bigger waves.

Management recently announced its ambitious goal of delivering an annual return on tangible equity (RoTE) of 10%. Given Standard Chartered’s track record of over-promising and under-delivering, it’s not surprising that many remain sceptical, resulting in a seemingly low valuation.

Yet looking at its 2022 first-quarter results, management so far seems to be on target. Its cost-to-income ratio has fallen to 62.1% from 74.3%, while RoTE reached 11.1%. Whether these figures can be maintained moving forward has yet to be seen. But so far, the group’s new strategy seems to be paying off.

Imperial Brands

Imperial Brands is one of the UK’s largest tobacco companies, generating most of its revenue from selling cigarettes. However, in recent years management has begun switching up its strategy by bringing healthier products onto the market, such as heated tobacco, oral nicotine, and vaping devices.

The stock currently trades at a cheap price-to-earnings ratio of 8.6. But this is nothing new. Like most tobacco companies, the business has always looked undervalued. Why? Because some investors aren’t fond of investing in a company whose products are known to cause severe long-term harm. But consequently, the group yields a pretty massive dividend that continues to return significant capital to shareholders each year.

Centrica

Centrica is a leading energy and utilities service provider in the UK. Beyond supplying gas and electricity, the group offers a collection of plumbing, drainage, and heating services through its numerous subsidiaries, including British Gas, Dyno, and PH Jones.

With electricity prices rising, the group’s bottom line has started moving in the right direction. And with a long track record of underachieving, it seems investors haven’t been entirely eager to jump on board. Consequently, shares currently trade at a relatively low valuation despite double-digit growth.

It’s possible that the recent jump in profitability is only short term. However, for the time being the stock is trading well below analyst forecasts. 

easyJet

Travel stocks have understandably been pulverised by Covid-19. With travel restrictions emerging worldwide, companies like easyJet have been limping on since 2020. Today the situation has drastically improved, though there remains a long road ahead before a full recovery.

Like many other airline stocks, there remains quite a lot of uncertainty surrounding easyJet. Yet despite this, the group seems to be in a stronger position than most. Its net debt has been steadily falling as it accumulates cash and equivalents on its balance sheet. Meanwhile, passenger capacity in the third quarter of 2022 is expected to reach 90% of pre-pandemic levels, with a near-complete recovery by the end of the year. 

The group obviously still has to contend with an increased debt load in a higher interest rate environment. But with fuel costs largely hedged to absorb the impact of rising oil prices, the group looks capable of making a full recovery in the long term. And that could mean its currently depressed stock price is undervalued versus the group’s future potential.

Redrow

After the pandemic decimated supply chains, homebuilders struggled to source necessary materials to keep up with surging demand. Redrow was no exception, with the stock taking a pretty significant hit as a consequence. 

Today, shares are still trading below pre-pandemic levels. Yet that’s despite the latest interim results showing superior revenues, profits, and a record order book. With interest rates rising, affordability for new homes is starting to suffer, which undoubtedly affects the group’s ability to sell its properties.

But in the long run, demand for housing isn’t going anywhere. And with the share price currently trading around six times earnings, this stock looks undervalued.

How to find undervalued stocks

There are two common methods to determine value:

1.     Relative Valuation (Multiples)

Starting with the easiest of the two, the relative valuation method doesn’t actually try to pinpoint the value of a company. Instead, it compares it with other businesses operating in the same or similar industry to see at what price point the shares are trading relative to another stock.

This is where financial metrics such as the price-to-earnings and price-to-sales ratio steps in. Stocks trading at a P/E or P/S ratio below the industry average are considered undervalued. Similarly, those trading above the average are considered overvalued.

2.     Intrinsic Valuation (Discounted Cash Flow Models)

The problem with the relative valuation method is that it makes many broad assumptions. Every business is unique in some way, which can skew results when compared with other companies, even if they operate in the same space. It’s entirely possible for a stock to trade above its industry average and still be undervalued.

This is where intrinsic valuation comes in. Unlike the relative, this method attempts to estimate the underlying value of a company based on the present value of its future cash flows using something called a Discounted Cash Flow model (DCF).

DCFs are a bit of a rabbit hole. But in oversimplified terms, an analyst forecasts the revenue stream for the next 5-10 years along with profitability to calculate the group’s future cash flows. These cash flows are then discounted back to present-day value at a rate reflecting the risk level associated with the stock. 

Calculating a sensible discount rate in and of itself can be a challenge. A typical go-to figure is 10%, but this can often be too little or too much, depending on the company. 

Once cash flows have been translated into present-day value, it’s then converted into equity value, which is the equivalent of market capitalisation. This can then be compared to the current share price to determine whether a stock is undervalued or not.

Needless to say, intrinsic valuation is far more time-consuming and challenging than relative valuation. However, it’s also more reliable, providing the analyst can produce accurate and reasonable forecasts – something that can be challenging to achieve.

Finding undervalued stocks in international markets

The core principles in identifying undervalued stocks and shares in international markets remain pretty much the same. However, there are some key differences to be aware of.

Depending on the location, the difficulty of accessing additional capital, either through debt or equity, can vary wildly.

If taking a relative valuation approach, performing a multiples comparison against other related companies operating in the same country is important.

If taking an intrinsic valuation approach, the discount rate needs to be adjusted to reflect both the difficulty of accessing capital and the risks of operating in certain countries. 

For example, accessing capital as a business in the US is far easier than in Brazil. But there is also the factor of the operating environment to consider. An American oil company might have easy access to funds, but if drilling is actually done in a more politically unstable region, the risk and impact of potential disruption need to be reflected in the discount rate.

Are undervalued stocks right for you?

Charlie Munger once said all investors are value investors. And in many respects, he’s absolutely right. After all, we’re all trying to pay a low price today to eventually sell at a higher price in the future. However, being a value investor requires a lot of knowledge and, more importantly, patience.

Undervalued stocks and shares can continue trading below their true value for months or even years. And it’s easy to lose faith in your original valuation model. After all, there is always the possibility that you were wrong. That’s why this strategy is not suitable for everyone. But for those who dare to go against the crowd and arm themselves with detailed analysis updated as new information comes to light, achieving long-term, market-beating investment returns becomes far more achievable.

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However, the British bank beat analysts expectations on Friday, announcing a 19% increase in profit.

So let’s take a closer look at the earnings report and see whether I’ve missed my chance to buy.

A stellar half

Standard Chartered first-half pre-tax profit rose 19%, beating market expectations. Statutory pre-tax profit for StanChart, which earns most of its revenue in Asia, reached $2.8bn in the first half, up from $2.35bn a year earlier. The figure also beat the average bank-compiled estimates of $2.48bn.

The emerging markets-focused lender benefitted from rising interest rates. The company also posted a positive post-Covid-19 outlook, pushing its shares higher. The bank also highlighted that its financial markets trading division reported record income.

The stock gained nearly 4% in early morning trading, before falling.

The Liverpool FC sponsor also announced an interim dividend of 4c per share, and a $500 million share buyback.

The London-based lender said that earnings were boosted by its focus on eastern markets, rather than the United States and Europe where economic forecasts have been repeatedly cut.

“Looking forward, whilst recession risks are rising in the West, we are seeing the early stages of a post-pandemic recovery in many of the markets in which we operate, underpinning our prospects for growth,” CEO Bill Winters said in the results statement.

However, the lender stated that Asia profits were dented by a $351m credit impairment. The impairment related mainly to to losses in China’s real estate sector and economic turmoil in Sri Lanka.

Standard Chartered said Hong Kong — its biggest market — showed resilience during the first half despite Covid-19 restrictions. Total income fell 5% in Hong Kong, compared with a 10% rise in Singapore and a 14% increase in India.

So, should I buy Standard Chartered shares?

Standard Chartered trades with a price-to-earnings (P/E) ratio (9) that is actually double that of Barclays. Its higher P/E ratio likely reflects the bank’s exposure to higher growth markets than Barclays and Lloyds, both of which are largely focused on the UK market. HSBC, which is more focused on Asia, also trades with a high P/E ratio. HSBC reports results on Monday.

Broadly I’m pretty optimistic on Standard Chartered’s focus on higher growth markets in Asia in the long run. However, I do have some concerns about the impact of inflation on developing nations later this year and beyond. What we’ve seen in Sri Lanka may just be a sign of things to come. The thing is, people in developed nations have more capacity to absorb higher fuel and food prices, but that doesn’t happen everywhere in the world.

So while the first half of the year may have been positive for Standard Chartered and its Asia focus, this might not be the case going forward. But, of course, I could be wrong here.

As a result, I wouldn’t buy Standard Chartered shares now. Although I’m bullish on this stock in the long run, I think there will be better entry points later this year.

Today, I’m looking at two of the biggest ‘winners’ and asking whether they can keep this momentum going for the rest of the year.

Flying high

One of my favourite FTSE 100 stocks from an income perspective has long been defence giant BAE Systems (LSE: BA). While it may not offer the biggest yield in the index, its record of increasing dividends on an annual basis is exemplary. Personally, I’d much rather pick reliability over a company offering a stupidly-high yield that might not get paid.

Income credentials aside, it’s BAE’s share price that has been on fire in 2022. No prizes for guessing why.

The invasion of Ukraine has shocked the world. It’s also pushed nations to increase, or at least maintain, defence spending. As a global player, that’s a potentially great tailwind for BAE. For example, it was recently announced that the US Department of Defense had awarded the company a $12bn contract to support its intercontinental ballistic missile systems.

Punchy valuation

Is all the good news now priced in though? Well, the shares are certainly more expensive to acquire than they once were. Having spent years looking pretty cheap, BAE now trades on almost 16 times earnings.

That’s getting punchy for a stock like this, especially as we might see some profit-taking when the war mercifully ends. So even though the earnings outlook feels solid, I’d say that risk has also increased here.

If I were looking for income, BAE would hit the spot. For income and capital gains from here, however, I’m looking elsewhere.

Back on track

Another FTSE 100 stock that’s done very well in 2022 has been Standard Chartered (LSE: STAN). As I type, the shares are up over 25%. That’s a far more impressive performance compared to index peers such as Lloyds Bank and Barclays. What gives?

One potential reason for the better form is that Standard Chartered does a lot of business in emerging nations and economies. Despite a resurgence of Covid-19, growth is expected to be better in these parts of the world compared to dear ol’ Blighty.

Low P/E but…

Shares in Standard Chartered still trade on a price-to-earnings (P/E) ratio of seven. That looks great value compared to the UK market as a whole. However, it’s important to compare oranges with oranges as much as possible. As far as the banking sector is concerned, that valuation is reasonable rather than screamingly cheap.

Of course, no one really knows what will happen to share prices in the near term. Such is the topsy-turvy world of the stock market, we can be more confident that equities will deliver over the next few decades compared to the next few months.

If pushed however, I’m a tad bearish. With sky-high inflation likely to put consumers off taking on debt to fund big-ticket items, I think it might struggle to repeat its recent share price performance going forward.

I could be completely wrong (and a well-covered 3% dividend yield is attractive) but I won’t be investing here.

Recent evidence shows that this rule doesn’t apply during the current downturn. This week, Morrisons said that like-for-like sales were down 6.4% in the 13 weeks to 1 May as soaring inflation hit consumer confidence.

Established operators like Tesco are caught between a rock and a hard place. They can aggressively slash prices at the expense of profit margins. Or they can resist the temptation and lose swathes of customers to low-cost chains like Aldi and Lidl.

Pressure is growing

The pressure on Tesco to cut prices is accelerating sharply too. On Wednesday, budget chain Poundland announced that 60% of its products will sell for £1 and below by the end of this week. That’s up from approximately 50%.

The problem for Tesco is that it may have limited wiggle room to reduce prices even if it wants too. Also in midweek, the retailer said it would stop selling products from Kraft Heinz in a dispute over pricing. The loss of consumer staples like Heinz’s ketchups, baked beans and soups is a big blow. It might not be the last loss it faces either as inflationary pressures hit food producers.

On the plus side, I like Tesco’s market-leading online operation. This could support strong and sustained profits growth over the longer term as e-commerce grows. But I don’t think this offsets the host of other problems the company faces.

This is why I’d leave the supermarket on the shelf, despite its 4.2% dividend yield.

A better FTSE 100 buy

Banking stocks like Standard Chartered (LSE: STAN) are also in danger as runaway inflation dents the global economy. They could actually be considered riskier for an investor right now than the likes of Tesco. Profits at banks are much more sensitive to changes in economic conditions.

That said, I’d much rather buy this FTSE 100 stock than the battered supermarket. StanChart trades on a forward price-to-earnings (P/E) ratio of 8.6 times. This is below the bargain-benchmark of 10 times that is suited to high-risk shares and suggests the risks to earnings forecasts are baked into the share price.

I’d also rather buy the bank despite its inferior 2.4% dividend yield for 2022. I’d be prepared to suck this up, given the possibility of ripping profits and dividend growth further out. Indeed, City analysts think 2023’s dividend will rise 26% year-on-year.

I like Standard Chartered because of its extensive footprint across Asia and Africa. I believe this could supercharge returns to the bank’s investors as demand for financial products soars in these emerging markets. As someone who invests for the long term I think this business is a great buy at current prices.

Endeavour Mining

Shares of Endeavour Mining (LSE:EDV) have increased by about 10% in the past year, but are down 4% in the last month. Currently trading at 1,747p, the share price has performed comparatively well given the broader economic environment.

The company – a gold miner in the Ivory Coast, Burkina Faso, and Mali – has been profitable over the past two years. In 2020, the firm posted a pre-tax profit of $219m. By 2021, this had grown to $424m.

In an update for the three months to 31 March, the business increased gold production by 14%, compared with the same period in 2021. 

Furthermore, it had all-in sustaining cost forecasts of well below $1,000 per ounce of gold for 2022. Considering that gold is currently trading for $1,822 per ounce, the business clearly has the potential to be profitable over the long term. However, I’m always aware that past performance is not necessarily indicative of future performance.

It’s also expanding its presence into Senegal by investing $290m in mining operations in that country. This has the potential to produce an additional 400,000 ounces of gold per year.

There’s always the risk, however, that future pandemic variants halt mining. In addition, the firm may find its balance sheet squeezed from wage inflation.

Standard Chartered

Standard Chartered (LSE:STAN) has seen a 27% rise in its share price over the past year, falling only 4.6% in the past month. The shares currently trade at 604p. 

The banking and financial services firm showed resilience following the pandemic. For 2020, its pre-tax profit amounted to $1.6bn. By the following year, this had risen to $3.3bn.

Investment bank Jefferies recently placed a price target of 991p on shares of Standard Chartered. This is primarily because it believes the firm will announce a $500m share buyback scheme with second-quarter results.

Higher interest rates in the UK and US may also prove beneficial for the business. These rates, which could be set to rise again next month, determine how much a bank can charge for its lending and mortgage services. 

While this might be good news, the risk is that surging energy bills and inflation could deter potential customers from taking on more debt.  

Overall though, I think these two businesses could provide me with growth over a long period of time. While there are inevitably risks, I feel they could be good additions to my portfolio. As such, I’ll be adding both companies next month.  

Property showing no signs of slowing

The first stock that I like is Rightmove (LSE:RMV). Over the past year, the share price has fallen by 3%. The online property marketplace had a booming 2021 as property rallied and there was a surge of activity. Revenue for the year rose 48%, with operating profit up 68%.

What impresses me is the positive outlook that the business has for the year ahead. Some might think that this had been one of the best UK shares to buy last year, but not now. I disagree with this thinking. The company has invested heavily recently in technology and people to help keep the momentum going. Further, the fears around a property crash seem to have eased. It appears that the market could remain buoyant, albeit with slower growth.

As a risk, I think there could be some hit to traffic due to people shunning higher mortgages rates. The rise in interest rates will be filtering through to the mortgage market. This could mean that people can’t afford repayments on a property they might have otherwise bought.

A top banking share to buy

Another one of the best UK shares to buy now, in my opinion, is Standard Chartered (LSE:STAN). The global bank sometimes gets overlooked by British investors in favour of more popular options such as Lloyds Banking Group. However, with a rally of 26% in the past year, Standard Chartered stock has a much better recent performance.

One of the reasons for this outperformance is because the business focuses mostly on Asia. This region is growing at the fastest pace, especially in comparison to Europe (or more specifically the UK). As a result, Q1 earnings included a 9% increase in income versus the same period last year, with net interest income up 10%. This was largely thanks to the higher interest rates in many developed markets.

Exposure to Asia can be flipped to a risk as well, of course. Some nations are still grappling with Covid-19, even though here in the UK there are no restrictions in place. If this divergence continues, it could put a strain on one of my favourite shares to buy now.

I’m considering an investment in both of the stocks mentioned. With my £750, I’d split it evenly between the two. I think they could perform well not just in 2022, but for the long term.

Stephen Wright: Rightmove

My top growth stock for May is Rightmove. Its business generates around £226m in operating income using just £12m in fixed assets, and its dominant market position is protected by a strong network effect.

As a result, earnings have increased by 200% over the last decade, pushed along by share buybacks. It also has an extremely strong balance sheet with more cash than debt. I’ve been admiring this company for a while, and I’m excited to have finally had the share price reach a level that I’m happy buying it at.

Stephen Wright owns shares in Rightmove.

Royston Wild: Hochschild Mining

I think there’s a good chance precious metals prices could soar as worries over global growth and soaring inflation increase. For this reason, I’d buy silver miner Hochschild Mining (LSE: HOC) for my portfolio in May. 

Mounting concerns over possible stagflation could boost silver prices in the near term. And over the longer term, they could increase as improving economic conditions likely supercharge industrial demand for the dual-role grey metal. 

City analysts think Hochschild’s earnings will rise 8% in 2022. They believe the company’s bottom line will improve 26% in 2023, too. 

Current projections leave the South American mining stock looking quite cheap as well. Today, Hochschild trades on a price-to-earnings (P/E) ratio of just 9 times for 2022. FTSE 100-quoted silver miner Fresnillo’s forward multiple sits at double this level. 

Royston Wild does not own shares in Hochschild Mining or Fresnillo. 

Edward Sheldon: Calnex Solutions

My top growth stock this month is Calnex Solutions (LSE: CLX). It specialises in testing and measurement services for telecommunication networks.

Calnex has generated strong growth in recent years on the back of the rollout of 5G network technology and looking ahead, I think it’s likely to continue doing so. Recently, the group advised that it was seeing “high demand” for its testing solutions and that its order book was sitting at “record levels”. It added that the board was confident it can deliver “significant, sustainable growth” over the coming years.

It’s worth pointing out that Calnex shares have had a good run recently, so they could experience a pullback in the short term. In the long term, however, I think they could go much higher as the company grows its revenues and profits.

Edward Sheldon owns shares in Calnex Solutions.

G A Chester: Impax Asset Management 

My rule of thumb for asset managers is they may offer value if priced at less than 3% of their assets under management (AUM). 

The last time I looked at fast-growing sustainable investing pioneer Impax Asset Management (LSE: IPX), its shares were trading at over £11. The market capitalisation was £1.5bn, meaning it was priced at 4.7% of its £32.2bn AUM. 

As I’m writing, the shares are below £7, the market cap is £910m, and it’s priced at 2.4% of £38bn AUM. Despite market and fund-outflow risks, I think Impax now offers value. Its half-year results are scheduled for 1 June. 

G A Chester has no position in Impax Asset Management. 

Zaven Boyrazian: Focusrite

Focusrite (LSE:TUNE) is a global audio equipment manufacturer targeting music industry professionals and hobbyists at home. Despite live events being cancelled during the pandemic, demand for its award-winning products continued to rise as artists shifted to working from home.

Music festivals are now back in business, restoring a portion of lost income. Yet recent supply chain disruptions have led to a slowdown in sales, sending the share price in the wrong direction.

However, the nature of the problem is ultimately short term. And with management’s long-term strategy uncompromised, the recent tumble looks to me like a fantastic buying opportunity for my portfolio.

Zaven Boyrazian does not own shares in Focusrite.

Christopher Ruane:  S4 Capital

Digital ad agency group S4 Capital (LSE: SFOR) saw its shares fall sharply after 2021 results were delayed twice. That has made me more nervous about governance at the company. But boss Sir Martin Sorrell has promised to fix that. I expect him to deliver.

Meanwhile, the unaudited results showed very high sales growth. S4 says 2022 has started ahead of already strong expectations. Any further governance slips are a risk. But the selloff looks overdone to me at this point. I am strongly considering topping up my position.

Christopher Ruane owns shares in S4 Capital.

John Choong: Rolls-Royce

Rolls-Royce (LSE: RR) recently posted a trading update, and it showed quite a bit of promise in recovery. Despite its flawed balance sheet, the firm is making some progress as it estimates to achieve positive free cash flow by Q3 this year.

Its other segments in defence, power systems, and new markets also posted encouraging developments, as orders continued to increase. Rolls-Royce is also set to grow its revenue in the low-to-mid single digit percentage range. So, with the share price below £1, this could be an opportunity to grab shares on the cheap and capitalise on the potential rebound.

John Choong has no position in any of the shares mentioned.

Paul Summers: AJ Bell

The awful performance of stock markets combined with the rise in the cost of living has hit trading at investment platforms such as AJ Bell (LSE: AJB). However, this is just the sort of quality growth stock I’d want to load up on in anticipation of a big recovery. 

A P/E of 25 isn’t cheap but it’s a far more palatable valuation than a year or so ago. This company consistently generates great margins and returns on capital.

With more people recognising the importance of planning for retirement, AJ Bell is one to tuck away, in my view.

Paul Summers has no position in AJ Bell

Roland Head: Standard Chartered

A FTSE 100 bank might seem an odd choice for a growth stock. But shares in Asia-focused Standard Chartered (LSE: STAN) look very cheap to me when compared with City growth forecasts.

Analysts’ estimates suggest StanChart’s earnings could rise by 15% this year and by 30% in 2023. But despite this bullish outlook, the bank’s shares still trade at a near-50% discount to their 1,120p book value.

Property losses in China and recession risks are a concern. But if CEO Bill Winters can deliver on Standard Chartered’s turnaround potential, I think the shares could perform very well.

Roland Head has no position in Standard Chartered.

Marching into the metaverse

I wouldn’t buy StanChart because of its expertise in digital industries. The FTSE 100 business is, of course, one of the world’s largest banking businesses. Its day-to-day operations don’t revolve around tech.

However, some news surrounding StanChart and its ambitions for exploiting the metaverse caught my eye this week.

On Monday the business announced it had acquired a plot of ‘virtual’ land in The Sandbox’s Mega City district. Standard Chartered follows HSBC’s recent entry into this artificial world, one that could pay off handsomely as consumers get more digitally engaged.

Analysts at JP Morgan recently said that “the metaverse will likely infiltrate every sector in some way in the coming years”, adding that it estimates the market opportunity “at over $1trn in yearly revenues.”

I like the proactive approach that the FTSE 100 banks are taking to capitalise on this opportunity.

A top emerging market stock

As I say though, StanChart isn’t a UK share I’d buy because of its credentials as a metaverse stock. However I would buy it because of the bright outlook for banks that operate in fast-growing emerging markets.

The rate at which financial product demand is growing in Standard Chartered’s Asian and African markets makes it a top stock to buy, in my book. A combination of low product penetration and rising wealth levels is supercharging demand for financial services.

As analysts over at the IMF note: “Higher incomes will lead to more demand for mortgages and cars, working capital for more companies, trade credit for Asia’s increasingly global companies, and bonds to finance infrastructure and provide stable incomes for retirees”.

Standard Chartered could be in a better position to exploit these exciting growth regions following upcoming restructuring measures. The business recently announced it was exiting nine markets across Africa and the Middle East to concentrate on other territories. Collectively, this handful of markets only generates around 1% of group profits.

A cheap FTSE 100 stock to buy

Like any share, Standard Chartered exposes investors to both opportunity and risk. And in the case of this business a significant downturn in the global economy is a real danger. Furthermore, a resurgence of Covid-19 in China poses another significant threat amid the spectre of fresh lockdowns.

Still, I believe these dangers could be reflected in its dirt-cheap share price. At 500p per share, the FTSE 100 bank trades on a forward price-to-earnings (P/E) ratio of just 7.7 times.

This is way inside the accepted bargain-basement level of 10 times and below. It also makes Standard Chartered better value for money on paper than fellow Asia-focussed FTSE 100 bank HSBC. The latter trades on a forward P/E ratio of 9.8 times.

While investing in stocks and shares puts your capital at risk, of course, StanChart’s a brilliant bargain I’d happily buy for my portfolio for the next decade. Though it’s not the only great growth share I have my eye on right now.