A stocks and shares ISA is a great tool to help you when looking to efficiently build your investment pot. Depending on your status, you usually do not pay tax on gains made within the wrapper, making it ideal to buy and hold companies for the longer term.
As your allowance to put fresh funds into the ISA resets each year, you can take advantage to top up and buy more of your favourite stocks or cut the ones you do not like.
At the moment, I would be eyeing up Lloyds Banking Group (LSE: LLOY) for my ISA. There are two main reasons for my conviction, explained below.
Brexit
I know you are probably fed up about reading articles that talk about Brexit. You are not alone! However, it could be a real benefit to Lloyds. This is because of the way the firm operates. While it employs over 45,000 people, it operates solely in the UK with no operations abroad.
Thus, at the height of the prospect of the UK crashing out of the European Union with no deal back at the end of last year, the share price was taking a pounding. It fell down to 50p as this year started.
This was because of concerns about how competitive the bank could be should the UK suffer economically from no-deal as consumers would likely cut back on spending and interest rates would likely fall.
However, now that signs of a deal seem to be on the horizon, and legislation such as the Benn Act and the Letwin Amendment have reduced the risk of a hard Brexit, Lloyds could really be on the way up.
Since this optimism started two weeks ago, the share price is up over 10%. Judging from the fact that the share price has been hampered by Brexit over several years, there could be significant longer-term growth prospects if PM Johnson does get the situation resolved.
Earnings report
At the end of the month, third-quarter earnings will be released. Now, while I cannot predict what they will come out as, I do think that they are unlikely to be massively disappointing.
Most of the info about PPI claims has already been put out to the market, and so the actual figures should not rock the boat too much. Indeed, with the PPI deadline being on August 29, banks such as Lloyds should now be able to put this behind them and move forward.
Revenue from the net interest margin (the difference between what the bank lends at versus what it gets paid) should also have reached the bottom during Q2, and now should be rising somewhat due to the move higher in interest rate swaps. This is a key profit area for the bank, and so even if Q3 earnings do not show show signs of this, earnings going into 2020 and beyond should do. I rate Lloyds as a Buy.
