HSBC (LSE: HSBA) shares have delivered huge gains in recent years. Yet the latest numbers suggest the market may still be underestimating the bank’s long‑term earnings power.

It continues to generate strong underlying profits and high returns, supported by rising revenue, firm net interest income and resilient capital strength.

So what sort of gains might we be looking at here?

What’s the share price potential?

Just because a stock’s price has risen substantially does not mean there is no value left in it. The reason is that the two measures mean different things.

Price is simply the number upon which buyers and sellers are happy to trade at any given moment. But value reflects the core fundamentals of the underlying business.

And, crucially for long-term investors’ profits, share prices tend to gravitate to their ‘fair value’ over the long run.

Discounted cash flow (DCF) analysis captures the logic behind this discrepancy. It pinpoints the fair value of any company by projecting future cash flows and discounting them back to the present. 

When those forecasts become less certain, investors demand higher returns, which increases the discount rate. DCF models vary according to the basic assumptions used by analysts. But based on my own 8.3% discount rate, HSBC looks 35% undervalued at its current £13.44 price.

That implies a fair value of £20.68 — significantly higher than today’s level. So, given the historical trend for stock prices to move to fair value, this could be a superb buying opportunity if those DCF assumptions hold.

Robust business momentum maintained?

HSBC’s latest results (Q1 2026, released on 5 May) showed total income up 6% year on year to $18.6bn (£13.8bn). The rise was driven by higher Wealth fees, stronger customer activity in Hong Kong and International Wealth and Premier Banking.

Meanwhile, net interest income increased 8% to $8.9bn, reflecting deposit growth and the benefit of reinvesting the structural hedge at higher yields. This is an interest‑rate portfolio that smooths earnings when rates move and continues to support income even as margins stabilise.

Profit before tax excluding notable items held stable at $10.1bn, underlining the bank’s ability to generate high earnings even through periods of macro uncertainty.

Together, these show a bank still producing high, stable profits with strong returns.

A risk is a rapid or deeper‑than‑expected global interest rate‑cut cycle that could squeeze margins faster than the hedge can effectively manage. Another is a downturn in global trade that might push credit impairments higher, so reducing profit stability.

Nevertheless, analysts forecast that HSBC’s earnings will increase by a strong annual average of 10.4% over the medium term.

My investment view

HSBC’s valuation still looks far too low for a bank producing this level of profit and return on equity.

The shares trade well below my estimate of fair value, despite stable earnings, strong capital strength and clear visibility on future returns.

For long‑term investors, that combination of resilience and undervaluation makes the stock look worthy of serious attention. And I, for one, will be buying more of the shares very soon.

I also have my eye on other deeply undervalued stocks in other sectors, several with much higher dividend yields too.

The post Just over £13 after its Q1 results, here’s why HSBC shares still look a bargain-basement buy for me anywhere below £20.68 appeared first on The Twelfth Magpie.

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HSBC Holdings is an advertising partner of Motley Fool Money. Simon Watkins has positions in HSBC Holdings. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

GSK’s (LSE: GSK) share price has dropped 18% from its 18 February one-year traded high of £22.82. Much of this followed the release of its Q1 results, despite them showing another excellent quarterly performance, which beat analysts’ earnings expectations.

Profit-taking after a previous strong run-up in price was one reason behind the pullback, I think. Another may have been the decline in sales for its General Medicines division, although other divisions did better than expected.

In either event, the drop only adds to the glaring disconnect between the stock’s share price and the underlying value of the core business. And it is in this gap that big profits can historically be made by savvy long-term investors.

So how big is it?

How good are the results?

The newest results — Q1 2026, released on 29 April — are just the latest in a string of strong numbers highlighting growing earnings momentum across GSK. And it is growth here that ultimately powers gains in any company’s share price over time.

A risk for the firm is any slower‑than‑expected uptake for new launches in its Vaccines and Specialty Medicines divisions. Another is any major problem in one of its key products, which could prompt costly litigation.

However, core operating profit rose 10% year on year to £2.8bn, highlighting strong momentum across Vaccines and Specialty Medicines. Vaccines revenue increased 15% to £3.1bn, underlining the continued strength of Shingrix and newer launches.

Specialty Medicines rose 12% to £2.6bn, illustrating how expanding respiratory and HIV portfolios are driving mix improvement. Continued investment in late‑stage pipeline assets also supports visibility on medium‑term growth, giving GSK multiple engines to power earnings ahead.

What’s the ‘fair value’ of the shares?

Price and value are very different measures for stocks. Price reflects whatever buyers and sellers are willing to trade on at a given moment. But value is determined by the strength and prospects of the underlying business.

That distinction matters for long-term investors’ profits. Over time, market prices tend to move toward a company’s true worth (‘fair value’). This is why understanding and quantifying the gap between price and value is so powerful for building returns.

Discounted cash flow (DCF) analysis helps investors understand where a stock’s fair value is. It does this by projecting a business’s future cash flows and discounting them back to the present. The more uncertain those projections are, the higher the return investors demand, increasing the discount applied.

Analysts’ DCF models differ because their assumptions vary. Using my own inputs — including a 7.2% discount rate — GSK shares are 58% undervalued at their current £18.73 level. That implies a fair value of £44.60, more than twice today’s price.

So if markets continue drifting toward fair value, this could be a great buying opportunity if those DCF assumptions hold.

My investment view

GSK’s latest results underline a business with far more earnings strength than its current share price suggests. The scale of the undervaluation versus my fair‑value estimate looks unusually large for a company of this quality.

With the shares trading at such a steep discount, I will be adding to my existing holding in the stock at these bargain-basement levels. And I also have my eye right now on other deeply undervalued shares in other sectors too.

The post GSK’s share price is down 18% despite another set of strong results! Time for me to buy more for under £19 while I can? appeared first on The Twelfth Magpie.

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Simon Watkins has positions in GSK. The Motley Fool UK has recommended GSK. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

This income share looks a compelling passive income opportunity to me, thanks to its unusually high yield and robust cash‑generation.

Management’s focus on capital discipline and shareholder returns enhances that income story. Combine that with a price that looks deeply undervalued, and the attraction for income hunters is clear.

So what sort of passive income returns are in view?

Rising dividend income forecasts?

Dividend yields can go up and down over time as share prices and annual payouts vary. In the case of FTSE oil and gas player Harbour Energy (LSE: HBR), analysts project the return will rise to 6.7% this year.

So a £20,000 holding (the same as mine) in the company would make £19,012 in dividends after 10 years and £128,434 after 30 years.

This also factors in the dividends being reinvested back into the stock to utilise the turbocharging effect of dividend compounding.

After 30 years — the end of the standard long-term investment cycle — the holding would be worth £148,434 (including the original £20,000 stake). And that would pay a yearly income of £9,945 from dividends alone!

But what about potential share price gains too?

How undervalued are the shares?

Discounted cash flow (DCF) identifies any stock’s ‘fair value’ by projecting its cash flows and discounting them to the present. The more uncertain those forecasts are, the higher the return investors demand, increasing the discount applied.

DCF modelling outcomes vary because analysts’ assumptions differ. Using my own inputs — including a 7.9% discount rate — Harbour shares are 53% undervalued at their current £2.78 level. That suggests a fair value of £5.91 — more than double where it trades today.

So if markets continue to converge toward fair value, this could be a compelling opportunity if those DCF assumptions prove accurate.

Where’s growth momentum coming from?

Following its acquisition of Wintershall Dea in September 2024, Harbour has transformed from a medium-sized North Sea‑focused operator into a major internationally diversified producer.

It now has significant assets across Norway, UK, Germany, Mexico, Argentina, Africa and Asia, and is the largest London‑listed independent energy company. That gives it a breadth and depth of exposure that is highly unusual for a company of its size, underpinned by a record step‑change in production.

A risk here is any prolonged period of lower oil and gas prices, which would hit earnings over time. Another is any rise in taxes across its key operating jurisdictions, which could squeeze free cash flow even when operational performance remains strong.

However, analysts forecast Harbour’s earnings will grow by a whopping average of 30.1% a year over the medium term. And it is this factor that powers rises in a firm’s dividends and share price over the long run.

These projections look underestimated to me, given its 2025 annual figures. Adjusted earnings before interest, taxes, depreciation, depletion, amortisation and exploration expenses soared 74% to $7.2bn (£5.3bn). Meanwhile, free cash flow surged from a $118m outflow to a $1.1bn inflow.

My investment view

This combination of high yield, strong cash generation and deep undervaluation is why the stock looks a rare opportunity for long‑term income investors to consider. And with earnings forecast to grow strongly in the years ahead, it has the potential to deliver strongly rising payouts and capital gains over time.

The post A 6.7% forecast yield and 53% under ‘fair value’! 1 FTSE income share to buy today? appeared first on The Twelfth Magpie.

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Simon Watkins has positions in Harbour Energy Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Aberdeen (LSE: ABDN) shares are a good example of a great advantage that FTSE indexes offer over similar global markets. This is a wide selection of stocks offering steady, high dividends that, when compounded, can generate huge returns over time.

These are driven by a far higher concentration of mature, cash‑generative sectors — banks, insurers, energy, miners, asset managers, and telecoms — than in other major global indexes.

The US’s S&P 500 is dominated by tech and growth stocks, which reinvest heavily and pay much lower yields. European markets sit somewhere in the middle, as do Asian ones, but both are generally below the FTSE’s payout levels.

What sort of returns can be made?

From 2020 to now, Aberdeen has paid an annual dividend of 14.6p. That resulted in average annual dividend yields of 7.7% in that year, 6.1% in 2021, 7.7% in 2022, 8.2% in 2023, 10.3% in 2024, and 7.1% in 2025.

These changing yields, despite a steady dividend, highlight that these returns can go down or up along with a firm’s share price.

Analysts forecast Aberdeen’s dividend yield at 7% this year, and remaining the same until 2028 at least.

How’s this translate into long-term income?

A £20,000 holding in the firm (the same as mine) would make investors £20,193 in dividends after 10 years and £142,330 after 30 years.The figures are based on the forecast 7% as an average, and on ‘dividend compounding’ being used.

That endpoint would coincide with early retirement options around 50 if someone started their investment journey about 20.

The total value of the holding in Aberdeen would be £162,330 by that point, including the original £20,000 investment.

And that would be paying an annual income of £11,363 from dividends alone by that stage!

Does the business look strong?

Aberdeen is not without its risks, as with all firms. One is that its ongoing reorganisation — involving cost‑cutting and platform simplification — takes longer than expected. This could delay the realisation of higher margins and increased profits that it anticipates. Another is any weakening in the global economy, which could deter investors from opening new accounts.

Nonetheless, its 2025 results released on 3 March this year showed IFRS profit before tax surging 76% year on year to £442m. It reflected a stronger platform performance and the early benefits of its simplification programme.

Net outflows also narrowed sharply to £1.7bn from £6.1bn, signalling stabilising client activity. Investment performance strengthened too, with 84% of assets outperforming the relevant benchmarks over one year and 80% over three.

My investment view

Aberdeen brings together everything that makes the FTSE such fertile ground for income investors, in my view. It displays high dividend yields, steady payouts, and the power of long‑term compounding.

Recent results also point to a business gradually strengthening, with profits rising sharply and flows stabilising. For me, that combination of dependable income and recovering operational performance is exactly what I want in a long‑term holding.

That is why Aberdeen remains firmly on my buy list — and why I am continuing to add to my position. Other very high-yielding stocks in other sectors have also caught my attention very recently.

The post Here’s how I’m targeting £11,363 in yearly second income from £20,000 in Aberdeen shares! appeared first on The Twelfth Magpie.

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Simon Watkins has positions in aberdeen group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Standard Life (LSE: SDLF) is a FTSE 100 name whose shares seem purpose-built for generating huge passive income over time.

It is the kind of business whose model naturally converts long‑term customer commitments into reliable shareholder returns via dividends. And, with the right starting sum and returns reinvested, that income can grow into massive monthly payouts in retirement.

So what sort of figures are we looking at?

Are dividends forecast to keep rising?

Standard Life — under its previous incarnation of Phoenix Group Holdings — has long been a leader in FTSE dividends. Part of its core guiding principles is its progressive dividend policy. This involves management increasing the dividend alongside earnings per share, but not cutting it if earnings fall.

Over recent years, the UK’s largest long-term savings and retirement company raised its dividend from 47.5p in 2020 to 55.4p in 2025. These generated respective average annual dividend yields of 6.8%, 7.5%, 8.3%, 9.8%, 10.6%, and 6%.

The varying return rates, despite rising dividends, underline that these payouts can alter with share prices.

Nevertheless, analysts forecast the dividends — and yields — will keep rising. Specifically, the projections are for dividend yields of 7.7% this year, 8% next year, and 8.3% in 2028.

By contrast, the average FTSE 100 dividend yield is just 3.1%.

What does this mean for annual income?

A £20,000 holding (the same as I have) in Standard Life would make £25,736 in dividends after 10 years and £219,167 after 30 years.

The numbers assume the forecast 8.3% as an average and the dividends being reinvested into the stock. This harnesses the extraordinary turbocharging effect of ‘dividend compounding’.

After 30 years on this basis, the holding’s total value would be £239,167 (including the initial £20,000).

And that would pay a monthly income of £1,654!

How strong does the business look?

As Standard Life’s rising dividends are directly linked to rising earnings, the outlook for these is crucial. A risk is tougher market conditions that could reduce fees on the assets it manages. Another is any regulatory change in the insurance sector that could squeeze its margins.

However, analysts forecast its earnings will soar by an average of 47.6% a year over the medium term.

Its full-year 2025 results showed IFRS adjusted operating profit rose 15% year on year to £945m. This reflected stronger contributions from both the Pensions & Savings and Retirement Solutions divisions. Meanwhile, contractual service margin grew 17% to £3.81bn, highlighting the huge store of future value that should continue driving earnings growth.

Management added that the firm should deliver another £500m of excess cash this year. And it reiterated it is on target to hit an adjusted operating profit of £1.1bn.

My investment view

With a long record of dependable dividends and a business model built on recurring cash flows, Standard Life looks well placed to keep rewarding long-term investors.

The latest results show a company generating strong profits and building a sizeable store of future value.

For those focused on long‑term income, that combination remains hard to ignore. And I will certainly be adding to my holding in the firm, as well as looking at similar opportunities in other sectors that have caught my eye recently.

The post Here’s how investors could make £1,654 a month in retirement from just £20,000 in Standard Life shares appeared first on The Twelfth Magpie.

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Simon Watkins has positions in Standard Life. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Passive income is one of the simplest financial ideas to grasp — making money with minimal effort. Yet it remains one of the hardest for investors to execute consistently well, in my view.

The key for passive income made from shares is not chasing the highest yield. It is understanding which companies generate the steady, recurring cash that can support those payouts.

And that is where the market often gets things wrong, especially with businesses that look far riskier on the surface than they really are.

How solid’s the underlying business?

One FTSE company that suffers from this kind of misunderstanding is M&G (LSE: MNG). At first glance, it looks like a traditional fund manager exposed to market swings, fee pressure, and unpredictable client flows.

But that impression is misleading. M&G is a hybrid business with several different engines of cash generation, many far more stable than investors assume.

The group combines a capital‑light asset‑management arm with capital‑heavy life‑insurance and annuity operations. These are all supported by a large balance sheet generating recurring investment income.

This mix gives the company multiple and independent sources of cash flow — fee income, insurance profits, and surplus capital generation. And it is this hybrid structure, rather than any single line of business, that makes M&G capable of supporting a high, sustained level of passive income.

How are these factors working now?

All these factors can be seen at play in M&G’s 2025 annual numbers released on 12 March. Net flows from open business swung to a £7.8bn inflow from a £1.9bn outflow the year before. The turnaround highlights the strength of both the asset‑management and life businesses in attracting new money.

Adjusted operating profit remained stable at £838m, illustrating how M&G’s diversified mix of fee income, insurance profits and investment returns helps smooth volatility.

A risk for M&G is sustained bearishness in financial markets that could pressure assets under management and fee income. Another is any tightening of regulatory capital requirements, which could hamper its ability to deploy capital freely in volatile conditions.

Nonetheless, analysts forecast its earnings will grow by a whopping annual average of 31.2% to end-2028. And it is growth here that powers any company’s dividends over the long run.

How much passive income can be made?

Analysts forecast M&G’s dividend yields increasing to 7.1% this year, 7.3% next year, and 7.6% in 2028.

So, a £20,000 holding in M&G (the same as mine) would make £22,663 in dividends after 10 years and £174,133 after 30 years. The numbers assume the forecast 7.6% yield as an average, although this can go down as well as up. They also assume the dividends are reinvested back into the stock to harness the turbocharging effect of ‘dividend compounding’.

At the end of that time, the holding could be worth £194,133. And this would pay a yearly passive income of £14,754!

My investment view

M&G’s hybrid model gives it multiple levers to support and grow its dividend, even when markets are unsettled.

For investors seeking long‑term passive income, that combination of stability, yield and compounding potential is hard to ignore.

And I for one will be adding to my holding in the stock as soon as possible. I also have my eye on other high-yielding stocks in other sectors.

The post How am I targeting an annual passive income of £14,754 from just a £20,000 holding in this FTSE financial giant? appeared first on The Twelfth Magpie.

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Simon Watkins has positions in M&g Plc. The Motley Fool UK has recommended M&g Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE 100 banking stocks do not always command much enthusiasm from investors. But NatWest (LSE: NWG) looks more compelling to me than at any point in recent years.

Its latest updates have shown steadily rising earnings, a stronger balance sheet, and increasingly generous returns to shareholders. And all while the shares continue to trade at a hefty discount to their long‑term fundamentals.

So, following its latest Q1 numbers, is now the moment for me to snap up more of the stock while it still looks cheap?

How do the growth drivers look?

A risk to NatWest’s growth momentum is increased competition in its key mortgages and deposits operations, which could squeeze its margins. Another is any worsening in the UK’s economy that could increase defaults on lending, increasing impairment charges.

Nonetheless, analysts forecast its earnings will grow by an average 4.6% a year over the medium term at least. This looks well supported to me by its Q1 2026 figures released on 1 May, if not a significant underestimate.

Total income jumped 9.5% year on year to £4.36bn, helping boost profit before impairment losses 15.7% to £2.32bn. The figures underline the continued benefit of deposit‑margin expansion and lending balance growth, which are set to remain key earnings drivers.

Operating profit before tax surged 12.2% to £2.03bn, highlighting strong deposit margin expansion and broad‑based lending growth. And earnings per share soared 15.5% to 17.9p, reflecting robust capital generation and balance‑sheet strength.

Together, these trends show NatWest entering 2026 with firm momentum behind it and further earnings growth ahead.

What does this mean for the valuation?

A share’s price reflects whatever number buyers and sellers are willing to agree on at a given moment. But its value is determined by the underlying strength and prospects of the business itself.

Over time, market prices tend to move back toward a company’s true worth (‘fair value’). This is why being able to quantify this gap is crucial for long-term investors’ profits.  

Discounted cash flow (DCF) analysis determines what a stock is truly worth by forecasting future cash flows and discounting them back to today’s value. When those forecasts are less certain, investors demand higher returns, which increases the discount applied.

Differing assumptions mean analysts’ DCF outcomes can vary. Using my own approach — including an 8.3% discount rate — NatWest looks 57% undervalued at its current £5.45 price.

That implies a fair value of £12.67 — more than double the present level. If markets continue to correct this price-to-value gap over time, this could be an excellent opportunity if those DCF assumptions hold.

My investment view

NatWest looks extremely well placed to me to generate the earnings growth needed to drive a meaningful rise in its share price over time.

Analysts also expect the dividend to keep rising, with forecast yields reaching 7% next year and 7.6% in 2028. These are more than double the current FTSE 100 average of 3.1%. And this constitutes a powerful income component to add to the valuation case for investment.

It is more than enough to cause me to buy more at the earliest opportunity. And I also have my eye on other very underpriced, high-yield stocks in other sectors too.

The post Around £5 now, here’s why this FTSE banking giant looks a bargain buy anywhere below £12.67 appeared first on The Twelfth Magpie.

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Simon Watkins has positions in NatWest Group Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Barclays (LSE: BARC) shares are down from their 4 February one-year trade high of £5.06. This pullback looks to me to be the result of broad-based profit-taking after a strong previous run. Nonetheless, it exacerbates the existing mispricing relative to the strength of the bank’s core operations, in my view.

Indeed, the underlying business continues to generate solid earnings, maintain a strong capital position, and return substantial cash to shareholders. And that disconnect points to a potentially excellent opportunity for long-term investors to benefit if the price gravitates towards its ‘fair value’.

So, what sort of potential gains are we looking at here?

How big is the price-to-value gap?

Asset prices, including shares, tend to move back towards a company’s ‘fair value’ over time. And to estimate fair value, discounted cash flow (DCF) analysis projects future cash flows and discounts them back to today. The more uncertain those projections are, the higher the return investors demand, increasing the discount rate.

DCF models vary depending on the assumptions used by the analyst. Using my own framework — including an 8.3% discount rate — Barclays shares appear 54% undervalued at their present price of £4.18. That implies a fair value of £9.09, more than twice the current level.

So, if the price continues to converge towards fair value, this could be a tremendous buying opportunity if those DCF assumptions hold good.

Supported by strong fundamentals?

Q1 2026’s results, released on 28 April, showed group income up 6% year on year to £8.2bn. It reflected the benefit of higher net interest income, supported by lending growth across the UK and US businesses and structural hedge gains. The hedge is a long‑dated interest‑rate portfolio that smooths earnings when rates move, and it continues to support income even as margins stabilise.

Profit before tax increased 3% to £2.8bn, highlighting the resilience of the bank’s diversified model, despite a £200m impairment in the Investment Bank. Elsewhere in its fee-based operations, Markets’ income grew 6% to £2.832bn, with Equities up 16%. This underlined the ongoing benefit of the bank’s recent shift toward fee-based rather than income-based business.

That said, its interest-based US Consumer Bank division also saw its income rise — by 14% to £983m. It reflected strong business growth and a higher net interest margin of 12.76%.

Together, these drivers point to a business with firm earnings momentum and improving operational efficiency. A risk here is that a period of weaker markets could still affect client activity and reduce fee income across the Investment Bank. Another is that credit conditions could tighten further, which may lead to higher impairments.

Nevertheless, analysts forecast that Barclays’ earnings will increase by an annual average of 8.6% a year to end-2028 at minimum. And this is what ultimately catalyses share price gains over the long run.

My investment view

I already have holdings in HSBC and NatWest, so adding another bank would unsettle my portfolio’s risk/reward balance. Instead, I am looking at similarly undervalued high-performance stocks in other sectors.

However, for those without this conundrum, Barclays’ combination of a wide price‑to‑value gap, firm earnings momentum, and consistent capital returns leaves it looking attractively positioned and one for long‑term investors to consider.

The post Down 17% from February, do Barclays’ sub-£5 shares look a steal to me after its Q1 results? appeared first on The Twelfth Magpie.

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HSBC Holdings is an advertising partner of Motley Fool Money. Simon Watkins has positions in HSBC Holdings and NatWest Group Plc. The Motley Fool UK has recommended Barclays Plc and HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

FTSE 100 pharma giant AstraZeneca (LSE: AZN) recently delivered yet another set of outstanding results.

Double‑digit revenue growth in key divisions, a stream of positive new drug trials, and a burgeoning pipeline all reinforce the company’s long‑term earnings power. Yet the market still seems reluctant to price in the strength of its underlying business.

So where ‘should’ the shares be trading and what are the catalysts that could power such a move?

What’s the stock’s ‘fair value’?

Price and value are different concepts for shares. Price reflects whatever buyers and sellers are willing to agree on at a given moment. But value is determined by the underlying strength and prospects of the business itself.

For long-term investors, that distinction matters because over time market prices tend to move toward a company’s fair value. This is why understanding the gap between the two metrics can be so powerful for building returns.

Discounted cash flow analysis is one of the most rigorous ways to estimate fair value. It projects future cash flows and discounts them back to the present. The greater the uncertainty in those forecasts, the larger the discount applied.

Analysts’ DCF models differ depending on their core assumptions. Using mine — including a 7.2% discount rate — AstraZeneca shares are 44% undervalued at their present £133.95 price.

That suggests a fair value of £239.20 — far above where the shares trade today.

Therefore, if market prices continue to converge toward fair value over time, this could represent a compelling opportunity, if those DCF assumptions prove correct.

What could force the gap to close?

Sustained earnings growth drives price gains for any stock over the long run. A risk for AstraZeneca is any slowdown in the ramp‑up of launches in its key Oncology and Rare Disease divisions.

Another is any regulatory or clinical setbacks across its late‑stage product-testing pipeline. These could delay commercialisation timelines and reduce the visibility of future cash flows.

Nevertheless, analysts forecast its earnings will increase by a strong average of 13.1% a year over the medium term at least.

Its Q1 2026 results saw core operating profit up 12% year on year to $4.25bn (£3.15bn). The number reflected strong demand across Oncology and Rare Disease and continued operating leverage despite higher R&D investment.

Total revenue grew 13% to $15.29bn, highlighting continued uptake of newer medicines and solid contributions from established brands despite ongoing generic pressures.

Consequently, management reaffirmed its full-year 2026 outlook, expecting low double-digit core earnings per share growth. It also reiterated its 2030 target of hitting $80bn in annual revenue.

My investment view

AstraZeneca’s strong and consistent earnings growth should catalyse the closure of the current price‑to‑value gap over time. As newer medicines scale and later‑stage assets reach the market, the company’s cash‑generation profile should become increasingly visible to investors.

Management’s reaffirmed 2026 outlook and its confidence in hitting the 2030 $80bn revenue ambition also provide a clear long‑term roadmap. If those targets continue to be met, the market may re‑rate the shares towards what I think is their fair value.

For investors seeking dependable growth backed by robust fundamentals, that potential convergence makes the stock worthy of serious attention. And it is certainly compelling enough for me to be looking to add to my holding in the firm very shortly.

The post 13% annual earnings growth forecast and 44% under ‘fair value! 1 FTSE 100 gem to buy today? appeared first on The Twelfth Magpie.

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Simon Watkins has positions in AstraZeneca Plc. The Motley Fool UK has recommended AstraZeneca Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Shell’s (LSE: SHEL) share price has dipped from its 31 March one-year traded high of £35.91. This adds to the already sizeable discount at which it trades to its true worth (‘fair value’), in my view.

The disconnect is even more striking, given the energy giant’s huge free‑cash‑flow generation, disciplined capital spending and ongoing share buybacks that steadily lift per‑share value.

So, what sort of gains could investors be looking at here?

How wide is the valuation gap?

The massive gap between Shell’s price and its fair value is not unusual in the stock market. The two measures often diverge, as they are driven by very different factors.

The price of a share is simply the outcome of short-term trading — the level at which market participants are willing to deal. But its value is rooted in the fundamentals of the business behind it.

For savvy, long-term investors, that gap is crucial. History shows that prices usually gravitate towards fair value over time, making the difference between the two an important driver of long-term gains.

Professional investors often rely on discounted cash flow (DCF) analysis to cut through the market noise and estimate what a stock is genuinely worth. The method projects future cash flows and discounts them back to today. The less certain those projections, the higher the discount applied to them.

Because analysts use different assumptions, their DCF valuations naturally diverge. Using my own inputs, including a 7.2% discount rate, Shell looks 63% undervalued at its current £33.14 price.

That places fair value around £89.57 — more than twice the current level.

Consequently, if markets continue drifting toward fair value, this could be an exceptional opportunity if those DCF assumptions prove correct.

How does growth momentum look?

The key catalyst to move price to fair value over time is sustained earnings growth. A risk for Shell is any sharp downturn in oil and liquefied natural gas (LNG) prices. It could quickly feed through to lower cash generation and slower earnings momentum. Another would be any substantial rise in capital‑investment demands for its energy transition businesses. This might squeeze free cash flow and delay the pace of per‑share value growth.

Nonetheless, analysts forecast Shell’s earnings will increase by an average of 6.4% a year to end‑2028, at a minimum. Its latest (Q4 2025) results showed adjusted earnings of $3.3bn (£2.4bn), supported by strong operational performance in Upstream and Integrated Gas in a lower‑price environment.

Cash flow from operations came in at a strong $9.4bn, reflecting resilient cash generation across the portfolio. Full‑year free cash flow of $26.1bn continued to fund dividends and buybacks while maintaining a robust balance sheet. This highlighted the benefits of Shell’s $5.1bn structural cost‑reduction programme and disciplined capital allocation.

Together, I think these elements should continue to support solid earnings growth ahead.

My investment view

Shell stands out as a stock that combines deep undervaluation with clear, ongoing drivers of long‑term value creation. These are strong cash generation, disciplined capital spending and meaningful cost efficiencies, which give investors a solid foundation for potential gains.

For long‑term investors willing to look past short‑term volatility, Shell’s current valuation makes it a worthy candidate for serious consideration.

And I will certainly be adding to my existing holding at the earliest opportunity.

The post Down 8%, is Shell’s share price a steal now around £33? appeared first on The Twelfth Magpie.

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Simon Watkins has positions in Shell Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.