The FTSE 100’s performance has been very positive in 2019, gaining 8% since the start of the year. After a troubled 2018, this suggests investors are becoming increasingly positive about its outlook.
Outperforming the index so far this year, though, is Lloyds (LSE: LLOY). It’s gained 12%, and its valuation suggests that there could be more capital growth to come despite the wider banking sector reporting an uncertain outlook. Alongside another potential recovery share which released results on Friday, Lloyds could be worth buying for the long term.
Turnaround potential
The other stock in question is global hotel operator Millennium & Copthorne (LSE: MLC). Its full year results highlighted the challenges experienced across the hospitality industry, with revenue per available room (RevPAR) increasing just 0.7% at constant currency. Pre-tax profit fell by £41m to £106m, with deteriorating US/China trade relations, Brexit and a rising minimum wage in some of its regions contributing to disappointing overall performance.
Looking ahead, the company intends to invest in its hotels, as well as reposition them through rebranding. It’s seeking to adapt to a changing hotel industry, with serviced apartments providing a rising competitive threat.
With Millennium & Copthorne’s shares trading on a price-to-earnings (P/E) ratio of around 14, the stock could offer good value for money. It has declined in value by 14% in the last year, which suggests that investors may have priced in the potential difficulties that it faces. With what could prove to be a sound growth strategy, the stock may deliver a successful recovery in the long run.
Changing industry
The rise in the Lloyds share price could reflect improving sentiment among investors towards the banking sector. Due to improvements in technology and shifting consumer trends, the industry is undergoing a significant and rapid change at the present time. Banks across the industry are rationalising their branch networks and expanding their online and mobile banking operations. This could provide a growth stimulus for the industry, and may lead to stronger net profit growth rates than are currently being forecast.
Since Lloyds has a P/E ratio of 7.6, it could offer a margin of safety compared to some of its index peers. Of course, operating conditions may remain uncertain, but even after its recent share price rise the stock’s valuation appears to factor in potential risks caused by Brexit.
Although inflation recently declined to its lowest level in two years, in the coming years there is likely to be a rise in interest rates. This could prompt higher net interest margins across the sector, which may lead to higher levels of profitability. With new PPI claims having a deadline of August 2019, the difficulties of the last decade could ebb away and lead to Lloyds having the potential to outperform the FTSE 100.
