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Lloyds Banking Group plc isn’t the only FTSE 100 share I’d sell right now

Image: Sandra Halliday

Despite a slight improvement in share picker sentiment towards Lloyds Banking Group (LSE: LLOY) in recent days )the Black Horse Bank has bounced from the five-month troughs of 63p per share hit last week) I believe the stock carries far too much risk right now.

You see, signs of growing weakness in the British economy, allied with Lloyds’ lack of exposure to financial climes to offset these troubles, means that I find it hard to see how the firm will generate meaningful revenues growth in the months, possibly years, ahead.

Bu this is not the only problem that threatens to hurt the FTSE 100 giant’s bottom line, of course, with the entire sector being hit by a fresh surge in PPI-related compensation claims over the past several months. Lloyds itself was forced to book another £1bn worth of provisions for between January and June of this year, and the industry is braced for a glut of fresh penalties following the launch of the FCA’s £42m claim awareness campaign in late August.

While the City expects the London firm to record an eye-watering 158% earnings improvement in 2017, the issues I have mentioned above are expected to put paid to any extended profits growth and a 4% decline is predicted for next year.

Given the range of problems facing Lloyds right now, I reckon the business is an unattractive investment destination despite its rock-bottom forward P/E ratio of 8.9 times.

Supply strains

BHP Billiton (LSE: BLT) is another Footsie-listed stock I would avoid at the present time, despite its ultra-low valuations. The mining colossus deals on a prospective earnings multiple of 14.2 times, nipping in below the corresponding big-cap average of 15 times.

Indeed, widespread concerns over the supply/demand dynamics of its core markets is reflected by broker expectations that the digger will endure a 2% earnings fall in the year ending June 2018.

And the prospect of extended profits woe cannot be ruled out as global production in the oil sector, for instance, marches higher. BHP Billiton itself commented last month that “OPEC strategy, US supply and US shale costs are the major uncertainties for the short and medium term,” and while the company is about to put its own North American shale assets on the block, it still has considerable exposure to the sector.

Meanwhile, the outlook for the iron ore and copper markets remains less than encouraging right now in spite of recent price rallies, as the next generation of so-called mega mines commence production in the next few years, and the world’s leading miners engage in vast expansion schemes at existing projects. Just last month BHP Billiton itself signed off on a $2.5bn programme that will extend the life of its Spence asset in Chile by 50 years. Such measures threaten to keep stockpiles running at abundant levels despite healthy demand growth in China.

Of course the metals mammoth’s long-running efficiency drive deserves plenty of plaudits. But I’m afraid the huge questions still looming over the fundamental outlook for its key markets would encourage me to sell up right now.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.