With the interest rate low and savings accounts offering a decidedly modest return, investing in the stock market has, in some respects, never been as necessary. But, getting this right needs careful consideration.
Despite the fact there is the potential to make a great deal of money with stocks and shares, conducting some prior research about the company and industry you want to invest in is crucial. After all, there is no such thing as a sure-fire investment that will guarantee a sizeable profit.
One company that a lot of people are thinking about putting their faith in is fallen banking giant RBS. In fact, some think that its shares are among the most attractive currently on offer in the UK.
But, is this true? Or are the shares too expensive to warrant snapping them up at this current moment?
Backing banks in relation to results
In the opinion of Mark Boucher, manager of the Smith and Williamson Enterprise fund, bank results issued at the end of October/start of November had been somewhat disappointing for most.
“There was good and bad in the results of all of the banks,” he said. “Lloyds is probably the furthest along the road to becoming a stable investment, but it is expensive, trading at 1.4 times the book value, and it still has the PPI stuff hanging over it, we would want to see the dividend come through.”
In fact, if investors were to look at results alone, HSBC appears to be the strongest choice, reporting a 32 per cent growth in profits. However, Boucher remarked that there are more to these results that meet the eye.
Profits for HSBC came from: “An assortment of one off items, the revenue line was actually flat, and there is the worry around the quality of the loan book in China, the 7 per cent yield is attractive, and will appeal to a certain type of investor, but the investment case for this bank very much depends on your view of the Chinese economy.”
Reasons for and against RBS shares
While RBS shares are quite an interesting option for potential investment, poor results and an inability to meet consumer demand doesn’t justify their cost.
“In the latest set of results the earnings numbers were not particularly attractive, and as with all of the UK banks the Net Interest Margin (the profit on loans, relative to the cost of borrowing the money) shrank,” Boucher added. “This is worrying when demand for loans is rising as the health of the economy improves.”
On top of that, RBS might still need to go to court in the US because of its mortgage backed securities business. Seeing as this is out of RBS’ control, it adds a level of uncertainty in a field where you need to be clear before putting your money in.
Therefore, it is difficult to make a case for buying RBS shares. Along with its inability to deliver positive results and meet the needs of current consumers, RBS’ share price is also too high. “There isn’t an interesting investment case there yet because of the valuation, which is quite high,” Boucher concluded.
In short: other banks might be a better bet – as might other sectors entirely. RBS is one to keep an eye on…but keep clear of for now.