Shares in RBS (LSE: RBS) continue to trade at a discount to the wider index. For example, the part-nationalised bank has a price-to-earnings (P/E) ratio of 12.3 while the FTSE 100 has a P/E ratio of around 13. A key reason for the discount has been RBS’s disappointing share price performance with it underperforming the wider index by 24% in the last year and showing little sign of mounting a successful comeback.
Despite this, now could be a great time to buy RBS. Not only is it cheap, but the bank has a couple of potential catalysts to push its share price higher. For example, it’s expected to record a rise in earnings of 19% in 2017, which has the potential to improve investor sentiment. In fact, this puts RBS on a price-to-earnings-growth (PEG) ratio of just 0.5, which indicates that it offers growth at a very reasonable price.
Additionally, RBS is also becoming a more financially sound bank. While the process of recovery following the credit crunch isn’t yet complete, RBS’s recent results show continued improvement and a government exit is still on the medium-term horizon. An announcement of this could convince the market that RBS is capable of standing on its own and that it’s all set to deliver improving financial performance in the long run.
Passive income stocks: our picks
Do you like the idea of dividend income?
The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?
If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…
Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.
What’s more, today we’re giving away one of these stock picks, absolutely free!
Broken China?
Also cheap at the moment are shares in HSBC (LSE: HSBA). They’ve fallen by 19% in the last year as investor sentiment towards China has declined. In this respect, things could get worse before they get better for HSBC since the Chinese economy seems set to continue with its soft-landing over the medium term and this could cause HSBC’s share price to come under a degree of pressure.
Looking further ahead though, HSBC has huge growth potential from an emerging middle class in China that’s seeing its income rapidly rise. As such, demand for financial products and credit is likely to increase, with HSBC being well-positioned to take advantage of it. And with HSBC now yielding 7.8% as well as having a P/E ratio of 9.9, it appears to be a deep value play rather than a value trap.
Meanwhile, shares in fund manager Aberdeen Asset Management (LSE: ADN) have also been hurt by fears surrounding China. They’ve fallen by 40% in the last year because Aberdeen is focused on the emerging market story and as with HSBC, things could get worse before they get better due to the scope for a continued slowdown in China.
However, with Aberdeen having a P/E ratio of just 13.9 and being forecast to return to bottom-line growth next year, investor sentiment could slowly begin to improve. Furthermore, with it having a yield of 7%, income returns in the meantime look set to be highly appealing. Although volatility may be high due to its business model and a beta of 1.6, Aberdeen still seems to be worthy of purchase for the long run.
