In fact, Shawbrook’s bottom line is expected to rise by 42% in the current year and by a further 28% next year. This puts it on a price to earnings growth (PEG) ratio of just 0.4, which indicates that now could be a great time to buy a slice of it. Similarly, OneSavings Bank is pencilled in to grow its bottom line by 37% this year and by a further 10% next year, which puts its shares on a PEG ratio of just 1.1.

At the same time, HSBC is enduring a challenging period. Its cost base is a real problem for the bank and, while a number of its major peers have been able to cut costs and become more efficient, HSBC’s operating costs remain near record highs. And, with income coming under pressure due to a weakening outlook for the Asian economy, HSBC’s profitability could be squeezed in future.

Certainly, the bank is attempting to reduce its expenditure, but it seems to be behind the curve in this respect. Other banks have achieved much lower cost:income ratios than HSBC and yet they were unprofitable during the credit crunch while HSBC remained firmly in the black. As such, investors appear to be losing confidence in HSBC’s ability to post growing earnings, with its shares sinking by 23% in the last year so that they now trade on a price to earnings (P/E) ratio of just 9.2. For a bank with the diversity, profitability and reputation of HSBC, this appears to be unjustifiably low.

Looking ahead, HSBC still has very appealing exposure to fast-growing markets. It may not be as efficient as a number of its peers, but its management team now seems to be fully focused on this issue and is aiming to slash around $5bn in costs which could mean that 25,000 jobs are lost. Furthermore, it offers a yield of 6.8% and, while no dividend is ever 100% safe, the chances of a cut to HSBC’s dividend appear to be relatively slim since it has a dividend coverage ratio of 1.6 and is forecast to grow profits in each of the next two years.

Clearly, HSBC’s growth rate is not going to match those of challenger banks such as Shawbrook and OneSavings Bank. And, while they certainly are sound buys at the present time, HSBC has too much potential to be sold at the present time. For investors who can afford it, buying all three could be a logical move, with HSBC’s diversity, stable profitability and income appeal marking it out as the dominant stock of the three to buy for a Foolish portfolio.

The post Is It Time To Sell HSBC Holdings plc And Buy Shawbrook Group PLC And OneSavings Bank PLC? appeared first on The Twelfth Magpie.

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For example, OneSavings Bank (LSE: OSB), a FTSE-250 listed mortgage and loan provider, trades on a price to earnings (P/E) ratio of just 11.5. This indicates that its shares are very cheap on both an absolute and relative basis, but when the company’s future growth potential is taken into account, it has an even greater appeal.

For example, OneSavings Bank is expected to increase its earnings by 32% in the current year, followed by further growth of 12% next year. This means that it trades on a price to earnings growth (PEG) ratio of just 0.9, which indicates that its shares look set to continue the 72% rise that they have posted since the turn of the year.

Furthermore, OneSavings Bank currently yields 2.1% and, with such strong earnings growth (as well as a payout ratio of just 24%), shareholder payouts are likely to rise. Furthermore, with interest rate rises likely to be somewhat slow, demand for loans should remain buoyant over the medium to long term, thereby providing a stream of potential customers for the bank to profit from.

Of course, OneSavings Bank is not the only bank with huge potential. Sector peer, Barclays (LSE: BARC), is also very, very cheap at the present time. It trades on a PEG ratio of just 0.4 which, for a bank that has remained profitable throughout the credit crunch, is a diversified operator and trades across the globe, seems to be unbelievably cheap. Certainly, regulatory issues have hurt investor sentiment but, unless investors believe that fines will cripple the bank, its current valuation seems to be hard to justify.

In fact, Barclays has been somewhat under the radar until its CEO departed recently. Prior to that, much of the discussion within the banking sector was with regard to the part-nationalised banks, as well as China-focused ones, and the onset of challenger banks. Barclays, though, is still hugely profitable and, with dividends set to rise so that it yields 3.5% next year (from a payout ratio of just 29%), it appears to be hugely enticing at the present time.

Meanwhile, broking specialist, ICAP (LSE: IAP), also offers significant capital gain potential. Its growth numbers may be somewhat lower than those of Barclays and OneSavings Bank, with it due to post a rise in its bottom line of 5% this year and 10% next year. However, with a very fair P/E ratio of 15.4, ICAP’s PEG ratio of 1.4 indicates that its shares offer good value for money. And, with the stock currently yielding 4.7% from a dividend that is covered 1.4 times by profit, it offers the best income prospects over the short to medium term out of all three stocks discussed here.

However, with its valuation being considerably higher than those of Barclays and OneSavings Bank, ICAP seems to less appealing than them at the present time (although I think it’s still a worthwhile purchase). And, while the outlook for OneSavings Bank is very bright, the size, scale and sheer resilience of Barclays mark it out as a more dependable place to invest. Plus, it has a more appealing valuation and yield than OneSavings Bank and, therefore, seems to be the better choice.

The post Barclays PLC Vs ICAP plc Vs OneSavings Bank PLC: Which Is The Best Buy? appeared first on The Twelfth Magpie.

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However, challenger banks Shawbrook (LSE: SHAW) and OneSavings (LSE: OSB) have notched up an even more impressive performance. So far this year the two challengers have racked up gains of 23% and 48% respectively. 

And there are three key reasons why this performance could be set to continue. 

Simple is best 

The banking sector’s increasing complexity is a key concern for the industry’s analysts. It has now become extremely difficult to understand and interpret the balance sheets of large financial institutions’. Even some of the world’s largest accounting firms and top City analysts have stated that banks are just becoming too complicated to understand.

Barclays is no exception. 

Barclays’ annual report now weighs in at a staggering 444 pages. The majority of the report is devoted to explaining the risks at the group’s investment bank, as well as the group’s exposure to exotic financial instruments. 

On the other hand, OneSavings and Shawbrook are very easy to understand.

Looking through OneSavings’ annual report, it’s easy to see how the company’s business works. There are around 20 pages of financial statements and the bank breaks down its loan book so investors can assess how much risk the lender is taking on.  

Similarly, Shawbrook’s annual report only extends to 70 pages. It’s easy to see that at the end of 2013 the group had taken £1.46bn of customer deposits, lent out £1.35bn, and had cash of £207m. 

The customer is always right

As part of its drive to cut costs, Barclays is overhauling many of its local branches. Counters are being removed and staff are being replaced by computers, which is alienating many of the bank’s customers.  

Luckily, for the likes of Shawbrook and OneSavings, this hands-off approach is pushing customers away from Barclays towards challenger banks that still place value on the client experience. 

Shawbrook is focused on lending to the small and medium sized business that has been turned down by traditional high street lenders. And since being set up during 2011, the bank has lent money to more than 60,000 SME’s and consumers. 

This approach attracted £1.4bn of new loans for the bank last year as UK businesses and consumers become more confident about trying new lenders. Shawbrook’s profit for the period jumped 192%. 

OneSavings’ speciality is mortgage lending, but the bank also targets SME’s. Targeting these two specialist sections of the market, with a different approach to mainstream lenders has helped the group triple pre-tax profits since 2013. 

Flexible model 

The third and final reason why Shawbrook and OneSavings are better picks than Barclays is their flexibility. 

Specifically, the two banks can adapt and change to market conditions faster than their larger, lumbering peer. The figures reveal all. 

Last year, Barclays’ return on equity — a key measure of bank profitability — was reported as 9.2%. The bank’s global footprint and complex business, which has become bogged down in regulation held down returns.

However, OneSavings and Shawbrook, both of which are smaller, and able to adjust quickly to changing consumer habits reported an ROE of 31% and 20% respectively for the same period. 

The post 3 Reasons To Sell Barclays PLC But Buy Shawbrook Group PLC And OneSavings Bank PLC appeared first on The Twelfth Magpie.

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• Why Barclays shares could have a huge second half of 2026
• Up 50% in a year! That’s not the only reason I’d consider buying Barclays over Nvidia stock today
• Barclays shares could soon soar another 21%, according to the latest price target
• After a 160% rally, major brokers still see more gains for Barclays shares. Here’s why
• How many Barclays shares do I need to buy to get a £1,000 passive income?

Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.