Shares to buy now: why I’d consider Lloyds Banking Group alongside this FTSE 100 stock

Since July, this FTSE 100 company’s share price has been trending down. But the decline is at odds with the progress of the underlying business.

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The Lloyds Banking Group (LSE: LLOY) share price is buoyant today on the release of the company’s full-year results report.

The figures reflect a year in which the coronavirus pandemic battered the business. And earnings per share came in 66% lower than the year before. Part of that outcome arose because of provisions for bad debts. But the bank’s stressed customers also spent less on financial products in 2020.

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Why I think Lloyds could be a share to buy now

Looking ahead, chief executive António Horta-Osório is confident 2021 will be a better year. He reckons Lloyds will help Britain recover and in so doing, help transition to a sustainable economy.”

So, does that positive outlook make Lloyds a decent potential investment now? I think it might do, particularly in the shorter term. One item of good news for shareholders is the re-starting of dividend payments. And my assumption is Lloyds will return to its previous position as a stock with a high dividend yield.

However, I’d never consider Lloyds as a long-term investment. The firm is hostage to the cyclicality in its business. My guess is the share price could now return to its pre-pandemic level. But I suspect the stock could then sit there for years with a low-looking valuation and a high dividend yield. Profits may rise in the years ahead, but so will the downside risk for shareholders.

We’ve seen the stock behave like that before between the credit crunch crash in the late noughties and the Covid slump last year. The business might do well, but the company’s success may not translate into decent long-term gains for shareholders.

Horta-Osório won’t need to worry because he’s leaving on 30 April. His replacement, Charlie Nunn, will start on 16 August and chief financial officer William Chalmers will take the reins in the interim period. I think change at the top can often refresh a business and usher in a new dynamic. But I’d rather make a long-term investment in FTSE 100 pharmaceutical company AstraZeneca (LSE: AZN).

Strong growth

Since July, AstraZeneca’s share price has been trending down. But the decline is at odds with the progress of the underlying business. City analysts expect earnings to increase by a triple-digit percentage this year and by almost 30% again in 2022.

This month’s full-year report revealed more than 50% of revenue in 2020 came from new medicines. There’s no doubt the company’s research & development (R&D) pipeline has been performing well over the past few years.

However, the firm is being cautious with the shareholder dividend and kept it flat. But the directors did pledge to progress the payment in the coming years. Perhaps the stock’s weakness is simply down to valuation. But with the share price near 7,053p, the forward-looking earnings multiple for 2022 is just above 15. I think that’s undemanding given the growth the business is producing.

Another factor that may be causing weakness in the share price is the way the pound has been shooting up against the US dollar. AstraZeneca reports in dollars. However, regardless of that possibility, I see the current dip as a buying opportunity. Of course, I could be wrong in my assessment and the stock may have further to fall.

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Kevin Godbold has no position in any share mentioned. 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.

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