Why It May Be A Very Bad Idea To Bet On Barclays PLC & Lloyds Banking Group PLC Ahead Of Q1 Results

Barclays PLC (LON:BARC) and Lloyds Banking Group PLC (LON:LLOY) have peaked, according to Alessandro Pasetti.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Barclays (LSE: BARC) (NYSE: BCS.US) and Lloyds (LSE: LLOY) (NYSE: LYG.US) have peaked, in my view, and if volatility springs back then both stocks will likely lose 5-10% of value in a flash. 

You could record decent returns out of them, but only if you time your investment properly. I’d get in at 200p-210p on Barclays, and at 55p-60p on Lloyds, seeking a 10-15% gross return — but there’s no value in either stock at these prices, I’d argue. 

Capital Gains

Only under unreasonable circumstances will their shares appreciate more than 10% in the next 12 to 18 months, in my view. More likely, they’ll drop by the same amount. Barclays trades at 258p, while Lloyds changes hands at 79p.

I don’t have a crystal ball, but certain stories in finance are easily told, in my experience: that’s the case for Lloyds and Barclays, whose big fans — most analysts and brokers — have very little to lose. 

Institutional investors may be attracted to both stocks, as trading volumes show, but neither bank is now worth retail money, unless retail investors are looking for a yield — that of Barclays — which could very easily be trimmed on the back of diminished cash flows, or a yield — that of Lloyds — which currently amounts to less than 1p a share.

If you are not impressed, you are in good company. 

Quarterly Results

Both British banks will report their Q1 results in less that two weeks — there are plenty of reasons why you may want to avoid them. 

Traditionally, May-July is not a great time of the year for Barclays shareholders, and although comparable quarterly figures aren’t incredible difficult to beat, they are not incredible easy to beat, either. The same applies to Lloyds. 

Since the credit crisis, Barclays and Lloyds have become stronger entities, at least financially, on the back of more prudent strategies — and that’s exactly the reason why their profit and loss statements could disappoint investors for a very long time.

Elsewhere, the right side of their balance sheets may please regulators, but asset write-downs are still a very real risk. Barclays, in particular, could also be haunted by significant goodwill impairments. 


Quite simply, at this point in the cycle, you shouldn’t pay too much attention to earnings multiples. Trading multiples mean very little for banks right now, and should be adjusted for several one-off items that have become recurring items, as I argued in the past. 

Rather, it’s the balance sheet and the cash flow statements that count most — that latter, at Barclays, suggests that the bank could cut its payout ratio. 

A savvy fund manager recently told me that there are two of kind of banks in this market: there are banks you don’t want to talk about, and banks you don’t want to invest in. 

In the middle there are opportunities.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

£20,000 tucked away? Here’s how I’d aim for a £29,664-a-year passive income

This Fool wants to debunk the myth that making passive income is impossible. With £20,000, here's how he'd do it.

Read more »

Dividend Shares

Starting with £0, here’s how I’d turn my Stocks and Shares ISA into a second income machine

Jon Smith explains how compounding his dividend payments can help him to grow his Stocks and Shares ISA from a…

Read more »

Happy parents playing with little kids riding in box
Investing Articles

A 9.7%-yielding FTSE 100 dividend gem that could create generational wealth

A sizeable investment pot that can be passed onto the next generation could be built with much smaller investments over…

Read more »

Investing Articles

Up 31%, do Lloyds shares have more to give?

Shares in major FTSE 100 bank Lloyds are on a charge. But what could be in store for the stock?…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Time to sell this FTSE 100 underperformer, says Goldman Sachs

Analysts at one investment bank have a ‘sell’ rating on FTSE 100 stock Diageo. But could a short-term weakness in…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Down 5%, Glencore’s share price looks a serious bargain to me now

Glencore’s share price looks undervalued to me, supported by strong earnings growth prospects and the potential resumption of extra shareholder…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’d invest £6,580 in this FTSE 250 REIT for £500 passive income

This FTSE 250 renewable energy enterprise is on track to become a Dividend Aristocrat! Here’s how I’d invest to earn…

Read more »

Investing Articles

Buying 1,000 of some dividend shares today unlocks £45 in weekly passive income!

These shares are among the biggest dividend payers in the FTSE 100. Should investors be buying them now to earn…

Read more »