HSBC (LSE:HSBA) is one of the largest banks in the world. The FTSE 100 stock has a high amount of daily share turnover, meaning a lot of HSBC shares get bought and sold each day. Over the past few years, the bank has gone through a lot. This ranges from a strategic transformation to become more efficient to dealing with the global pandemic. But if I’d invested five years ago, would I be up at the moment?

Struggling from different angles

Five years ago, HSBC shares were trading around 650p. With the current price of 422p, this represents a fall of just under 35%. So on my investment of £1,000, I’d be down £350. I should note that this doesn’t take into account the dividends I would have received in the process. From 2016 to early 2020 the dividend yield was 5% or higher. Although this still wouldn’t offset the loss from the falling share price, it would go some way to reducing it.

Why have we seen such a fall in the share price over this period? One key element was the restructuring of the business before the pandemic hit. The aim here was to trim down the size of the bank, to allow it to focus more on key growth areas (predominately Asia). This involved large costing-cutting in certain areas, which spooked the market. For example, back in February last year I wrote about how the news of 35,000 job cuts saw the price drop 6% on the day.

It’s always tough to go through a restructure. The issue investors faced was that short-term pain was going to be felt before the benefits would be seen. Unfortunately, the benefits haven’t been seen yet, due to the pandemic. This struck as the bank was in the process of transforming and provided a lot of problems. 

For example, large provisions were needed to be set aside for potential bad debt and loan defaults. Given the size of the bank, these numbers were significant. As a result, last autumn the HSBC share price hit low levels not seen for several decades.

Positive gains for HSBC shares in the next five years?

I personally didn’t buy HSBC shares several years ago, so the question I now consider is whether I should buy the stock now. One metric I can review is the price-to-earnings ratio. This is currently 31.5. For comparison, Barclays has a ratio of 20.74, with Lloyds at 38.6. From that I can conclude that although all bank stocks have relatively rich valuations, HSBC isn’t the most expensive in the sector.

The other question I need to think about is whether the sector will do well next year. Personally, I think it will. The driver behind this is the likely increases in interest rates in the UK and around the world next year. This should help HSBC to boost its net interest margin. 

In terms of risks, I wouldn’t say that the HSBC transformation is anywhere near complete. Issues with cost cutting could provide negative publicity for the bank.

Overall, I don’t have a high enough conviction to buy HSBC shares at the moment, so will pass on the opportunity.

Jon Smith has no position in any firm mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and Lloyds Banking Group. 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.

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BT (LSE:BT.A) shares have experienced a roller-coaster ride so far this year. At current levels, the BT share price looks tempting, so should I add the shares to my holdings? 

BT share price roller coaster

The BT share price is currently trading for 166p. At this time last year, shares were trading for 137p, which means the shares are up 21% over a 12-month period. The past six months has seen the shares dip by 19% from 205p in early June. At current levels, BT shares are trading at similar levels prior to the market crash but overall the shares have been on a downward trajectory for a number of years.

I believe the BT share price has been on a downward trajectory in recent years due to poor performance related to restructures, as well as increased competition among other things — but more on that later. At current levels, BT shares sport a price-to-earnings ratio of 17, which could be considered a bargain for a company so crucial to the UK’s communications network.

For and against investing

FOR: BT is currently undergoing a major restructure which will see it return to focus on its core business model. This will involve investing and focusing on its telecom networks and fibre internet connectivity for example. A positive to come from the restructure was the recent addition of Adam Crozier as an independent non-executive director and chairman. He has a history of turning around ailing firms, ITV being a recent example.

AGAINST: BT has tried to restructure and re-focus in the past. Approximately five years ago it decided to try new markets and products which led to the entry into the TV market. An example of this not working so well is its BT Sport model which saw it engrossed in a bidding war for many of sports top attractions. It could be argued it overpaid for some of these TV rights. BT has been in discussions with streaming company DAZN to sell its BT Sports arm. Things haven’t worked out in the past so I must be wary of BT repeating the same mistakes.

FOR: A half-year trading report announced last month showed signs of longer-term recovery. Revenue was slightly down but profit was up. Operationally, BT confirmed it continues to cut costs to save £1bn as part of its streamlining and restructuring. This target has been met 18 months early. Crucially, an interim dividend of 2.31p was declared. This is good news for investors as last year it had to cancel dividends.

AGAINST: The broadband and fibre connectivity market is more saturated and competitive than ever. BT faces a fight on its hands to return to being one of the most trusted telecoms providers in the UK. To make things worse, it has a lot of debt on its books which could hinder progress and performance.

My verdict

I can see the longer term potential in BT’s new direction and refocus on its core business model. The BT share price at current levels is tempting but there are too many negative factors putting me off. Yet another restructure and lots of debt worry me. Right now I will avoid BT shares for my portfolio.

Jabran Khan 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.

2021 has been both good and bad for the stock markets. In the first part of the year, the momentum seen after vaccine development carried the markets along. However, in the last few months, there has been a lot of uncertainty. Still, many stocks have been able to sustain at least some gains from the past year. Unfortunately, the FTSE 250 cinema operator Cineworld (LSE: CINE) is not one of them. The stock is down by a whole 30% from the year before!

What’s up with the Cineworld share price?

After rallying to a high of 122p in May this year, the Cineworld share price has come crashing down back to penny stock levels. It has lost more than half its value from May’s highs and is now trading at 45p. The stock has slid down in value over the months, but the past month has been particularly bad for it. It has lost 34% of its value since!

This drop is unsurprising, though. It is a classic recovery stock, which is hyper-sensitive to any Covid-19-related developments right now. And since the Omicron variant has brought some bad news with it, the Cineworld stock has tanked. In fact, this is true for other recovery stock as well. In another article today, I talk about FTSE 100 travel stocks, which have suffered a similar fate in the past month. 

Why I’m hopeful for the penny stock

But I am quite hopeful about the stock’s prospects for exactly this reason. When a stock fluctuates a lot, it is as likely to run up as to crash. So if the news flow were to turn positive again, I reckon it could rise back up. And I say this as an investor in the stock, with real money on the line here. Of course in the meantime, it is a test of patience for investors like me, because pandemic-related uncertainties have stretched for almost two years now. 

At the same time, I think there is more reason to be hopeful now than not. For one, there are no lockdowns in Cineworld’s biggest markets of the US and UK, at least not yet. Both countries appear more inclined to tackle the latest variant through booster shots than restrictions. So, let us see if there is a hit to the company’s business again. Even if there are lockdowns, they are unlikely to last as long as they did earlier, given both the severity and extent of the situation so far. 

What I’d do now

I also like to check analysts’ forecasts for stock prices to get a better sense of the mood around the stock. And in this case it is unanimously bullish. On average they expect a 93% rise in its share price as per Financial Times data. I have already bought the stock, but if I had not, I would buy some now. There is of course still risk to it, because we do not know how long the pandemic would stretch out. But at the same time, I would invest some being fully aware of the risks, given the potential upside to the stock.

Manika Premsingh owns Cineworld 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.

As some markets have touched record highs in recent months, many investors have become sellers rather than buyers. But I continue to see some shares whose long-term prospects I like so much I consider them potential shares to buy now for my portfolio.

Let’s imagine I had £20,000 to put to work in the stock market today. If I was looking for a mixture of growth and income potential from blue chip names, here’s how I might do it. I would diversify across five sectors to reduce my risk, putting £4,000 into shares of a leading company in each one.

Digital giant: Alphabet

One of the ways I sometimes first become aware of businesses I could invest in is through using them as a customer.

Like many people, one company I interact with many times a day as a customer is Alphabet (NASDAQ: GOOG), the parent company of Google. The internet giant is ubiquitous in many people’s daily lives. From search to email, Google is the front page of the internet for hundreds of millions of users worldwide.

I think that has helped it build a level of customer loyalty that should help Alphabet remain profitable for decades to come. Its business model of selling targeted adverts is highly lucrative. But Alphabet has evolved into a diverse set of revenue streams, so that it is not purely reliant on ad income. With profits last year of $72bn, it is hard to remember that the company is little over a couple of decades old.

I like Google shares as an idea for my portfolio because I see them as a sort of royalty on future internet use. In the long term, I expect internet use to keep growing substantially. With its huge user base and proprietary technology, Google is set to continue being a key beneficiary. If profits continue to rise over time I expect the shares to do well, even if there are bumps along the road.

There is a risk that Google could become less popular with younger users as some social networks have done, which could hurt revenues and profits.

Banking shares to buy now: Lloyds

I think a recent pullback in the Lloyds (LSE: LLOY) share price offers a buying opportunity for me.

Over the past year, the shares are up 27%, at the time of writing this article earlier today. I still think there is a long-term growth story here, though. As the UK’s leading mortgage lender, the company is well-positioned to benefit from ongoing strength in the housing market. It is also looking to expand its business lines. For example, it has set out ambitions to grow its own letting property portfolio. I think there is a risk that could distract management from its core business. But if it works out, it could well add to the company’s profitability.

I also expect good news on the company’s dividend in 2022. It has a growing cash surplus, at least some of which could be put to use by boosting the dividend in line with Lloyds’ progressive policy. But dividends aren’t guaranteed and any downturn in the economy is a risk for the bank. Higher borrower defaults could hurt profits.  

Consumer goods leader: Unilever

With an eye on the long term, another name on my list of shares to buy now for my portfolio is Unilever (LSE: ULVR).

The consumer goods company owns popular brands from Dove to Hellmann’s. I like its broad portfolio of premium brands, which gives it pricing power. I also like the fact that it is highly exposed to a full gamut of markets. It does a lot of business in developing markets like India and Indonesia, as well as developed ones. That brings a risk that when there are economic downturns, revenues may fall. But it offers the benefit that, as more people worldwide increase their disposable income, Unilever can benefit from some of their spending.

For several years, the company has underwhelmed investors. In the past year, for example, the Unilever share price has slipped 8%. Some of the reasons for underperformance remain as risks. For example, rampant cost inflation could lead to lower profit margins. But I see the price fall as an opportunity to pick up a quality blue chip company for my portfolio at a more attractive price than before.

Energy titan: ExxonMobil

There’s a lot of discussion about future energy demands. No matter what may happen, one of the companies I reckon should keep doing well is energy giant ExxonMobil (NYSE: XOM).

I don’t think oil demand will disappear any time soon. In fact, unlike many commentators, I don’t even expect it to decline. While some customers may switch to alternative energies, the global customer base keeps increasing with population growth. I think that will compensate for some customers abandoning oil. With its huge operations and recent efforts to lower production cost per barrel, Exxon should keep pumping profits from its oil wells for decades. It also has a large natural gas business which I think has a promising future.

On top of that, if alternative energy really does become a big thing, I think the company’s expertise will stand it in good stead to develop a strong market position.

Energy pricing is cyclical, so the Exxon share price can be volatile. I like its income prospects, though. Having raised its dividend annually for over three decades, the iconic company currently offers a 5.7% yield.

High yield tobacco: British American Tobacco

I’d also buy British American Tobacco (LSE: BATS). The owner of famous tobacco brands including Rothmans, Camel, and Pall Mall pays a yield of 8%. That makes it one of the juiciest income shares right now in the FTSE 100.

There’s clearly a risk here. As cigarette use declines in many markets, it could hurt both revenues and profits at the company. But I think the yield helps to compensate me for that. The company has been developing non-cigarette products, including vaping and heated tobacco. They could help it grow revenues in coming years. Last week, it guided the market to expect revenue growth of over 5% for the year, adjusted for currency fluctuations. With its broad portfolio and iconic brands, BAT makes my list of five blue chip shares to buy now for my portfolio and hold for the long term.

Christopher Ruane owns shares in ExxonMobil, British American Tobacco and Lloyds Banking Group. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares), British American Tobacco, Lloyds Banking Group, and Unilever. 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.