Have £1k to invest? I think the Lloyds share price could crush the FTSE 100 this year

Lloyds Banking Group plc (LON: LLOY) could offer better value for money than the FTSE 100 (INDEXFTSE: UKX), in my opinion.

| 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.

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.

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.

Peter Stephens owns shares of Lloyds Banking Group. 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.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »