HSBC shares are outperforming the FTSE 100. Should I buy this month?

At FTSE 100 recently hit a record high, defying gloomy economic forecasts. But when I looked under the bonnet, all was not as it seemed. The FTSE 100 has lagged several other major indices this year. This requires me to be aware of individual stock options. The FTSE 100 does not excel, but there are clear stocks – HSBC Holdings (LSE:HSBA).

The global bank has beaten the FTSE 100. The stock is up 15% this year, compared to the main index (4%).

FTSE 100 banking stocks

With recent interest rate hikes, it’s the right time for me to look at the banking sector. Many analysts are predicting that the Bank of England’s Monetary Policy Committee will raise interest rates higher. This could be a boon for the bank in 2023. I am confident about the earnings and the stock, based on higher interest income, good dividend growth, and better financial health since the financial crisis.

Of course, these stocks are not without risk. The benefits of rising interest rates tend to be partially offset by rising defaults, particularly in the case of the struggling UK economy. Of course, low economic growth could dampen the growth prospects of the banking sector – as well as the businesses it serves.

HSBC’s global coverage

The main attraction for HSBC shares above other British banks is its global operations around the globe. It is a major player in Asia and is increasing its investment there. This broader exposure also reduces risk for me, as the group’s profits are not dependent on the performance of just one economy.

However, this global coverage also comes with risks. The bank is bloated with many unprofitable global ventures with high operating costs. New Zealand’s retail banking offering is one example. I would like to see the plans in the future results of the disposal of other assets to make the engine company leaner, more profitable.

FTSE 100 bargain

Regular readers will know that I love a bargain. Although HSBC’s current share price is good, it’s the fundamentals that make the most compelling investment case for me.

I Note The stock is one of the best-yielding in the FTSE 100, with an advanced yield of 7% +. I also saw that the shares are trading at a very modest value. The price-to-earnings ratio is 7 times, compared to the UK peer average of 9 times.

In addition to this, analysts think that the stock is trading at 40% below its fair value. I definitely see the value potential in terms of value. Revenue for the underlying business is expected to grow 7.1% per annum (on average) over the next three years, compared to 5.8% growth forecast for the UK banking sector as a whole.

Hopefully the upcoming Q4 results and full year results for 2022 this month will make for interesting reading.

In a higher interest rate environment globally, HSBC is well positioned to benefit, I feel. Although it is a cyclical business that may fall victim to the faltering UK economy, it is sufficiently diversified internationally to increase profits. I expect HSBC to generate more income this year as interest rates rise.

For this reason, I would like to take some shares. But the long-term outlook proviso in the results coming this month is in line with my expectations.