The FTSE 100 is packed full of bargain stocks. And today I’m looking at two companies on the index that I see great potential in.
Why am I buying Hargreaves Lansdown?
Firstly, what does Hargreaves Lansdown (LSE:HL) do? Well, it is a digital wealth management service administering company, which provides a range of services including stocks and shares individual savings accounts (ISAs), Self-Invested Personal Pensions (SIPPs), share dealing, fund dealing, drawdown, cash savings, lifetime ISAs and junior ISAs.
While the broader market lost around 0.8% in 12 months, Hargreaves Lansdown shareholders did worse, being down 18%. Having said that, it’s inevitable that stocks will be over sold during a bearish market, so I will need to keep my eyes on the fundamental developments in the coming future.
The stock is down by 65% from its pandemic peak and is trading at 10-year lows. European stocks have rallied in recent weeks as banking worries faded, but financial stocks are still trading at discounts. Research suggests that I may be able to use this situation to our advantage. Put simply, investors tend to overreact to bad news.
Hargreaves makes its money through platform fees, transaction fees and interest on customer deposits. Going forward, I think this business may be forced to cut its prices somewhat to become more competitive. But it looks affordable to me, given Hargreaves Lansdown’s near-50% margins.
In my view, this business should continue to benefit from macro-economic trends towards self-managed investment and remains in a strong position to deliver attractive long-term returns.
Total revenue for this year is estimated at £698m, up from £583m in 2022. Net profit is estimated at £300m, up from 2022 net profit of £216m.
The shares also currently offer an attractive 5%+ dividend yield. Historic yields are strong too, with 2022 coming in at 5%. Analysts are forecasting a 2023 yield at 5.05% and 2024 at 5.17%.
Hargreaves Lansdown has a strong team, good customer service, bargain prices, promising financials and supplies a product I can’t live without!
Why Barclays?
The Silicon Valley Bank failure appears to have resulted from the bank’s decision not to hedge its interest rate risk. Are other banks at risk?
Well, not Barclays (LSE:BARC). I don’t think the management is that ignorant. Quite frankly, it’s ‘banking 101’ to hedge interest rates!
Last year’s results showed a substantial increase in interest income, improved lending margins, and strong capital positions. Increases in expected bad debt look relatively modest and manageable. Shareholders are being rewarded with increased dividends and substantial share buybacks.
Moreover, profitability has improved. In other words, it is generating stronger returns on its assets.
Barclays is undoubtedly cheap, trading at five times earnings, and could be a fantastic value play for me. The company’s investment banking division could theoretically also support stronger growth.
The main concern I have is that the UK market is structurally mature and low growth. However, I think that retail banks like Barclays look in good shape, trade at attractive valuations, and offer high dividend yields.
