Without any doubt, this has been a terrible year for the FTSE 100. Indeed, I believe that the Footsie’s 21.8% plunge so far this year is the worst since the global financial crisis (GFC) of 2007/09.
The FTSE 100 giants take a brutal beating
What’s really noticeable about the performance of the FTSE 100 is the enormous loss of market value among ‘mega-caps’ – the biggest beasts of the index. I estimate that over £460bn has been wiped out due to crashing share prices among the FTSE 100’s very largest constituents. Ouch.
For example, thanks to its share price halving in 2020, shareholders of global mega-bank HSBC Holdings have lost over £60bn. Likewise, the owners of oil supermajor BP have lost over £47bn this year, thanks to a 52% crash in its share price.
As a result of this collapse in mega-cap value, the FTSE 100 is worth just £1.66trn today, versus more than £2.2trn at its May 2018 high. That’s roughly £550bn that’s gone up in smoke. In short, in the ‘selling storm’ caused by the Covid-19 crisis, small has been beautiful and big has been bloody.
This FTSE 100 former giant is down 58% in 2020
When I go bargain-hunting in the basement of the FTSE 100, there is no shortage of candidates whose share prices have crashed spectacularly. For example, my quick search earlier found no fewer than 14 shares down 40% or more over the past 12 months.
One of the worst performers among these ‘dogs of the FTSE 100’ is perennial value share Lloyds Banking Group (LSE: LLOY). For the record, the Lloyds share price is down more than 58% in 2020, 52% in the past year, 60% over three years and 64% over five years.
Thus, since 2015, the best time to buy Lloyds shares has been…pretty much never.
Value investing is dead. Long live value investing!
Of course, there are very good reasons why this particular FTSE 100 share has crashed in 2020. Being the UK’s biggest lender during a global pandemic and the worst economic collapse for 300 years is not the best position to be in. Likewise, with unemployment likely to rise by at least another million, Lloyds faces huge losses from consumer and corporate lending.
Nevertheless, I honestly feel that, looking beyond the next six months to a year, there is a brighter future for Lloyds and its loyal, long-suffering shareholders. Most of Lloyds’ lending consists of millions of dull mortgages with plenty of room for haircuts.
Likewise, the FTSE 100 bank has vastly more free capital now than it did when it needed bailing out during the GFC. Also, with over 30 million customers, Lloyds’ risks are spread very wide – and very few of these customers will actually default on their credit cards, loans and mortgages.
On Tuesday, Lloyds shares closed at 26.13p, valuing the UK’s biggest financial services provider at a mere £18.8bn. Last Tuesday, on 22 September, the share price hit its 2020 low of 23.59p, so Lloyds shares are up 10.8% in a week. Despite this bounce-back, I still believe that this FTSE 100 survivor is cheap as chips, so I would happily buy and hold its shares today.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
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Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and 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.