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.

| 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.

sdf

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.

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.

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.

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.

More on Investing Articles

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

I’ve doubled my money on this growth stock but I’m not selling it any time soon

Uber has been a great investment for Edward Sheldon, rising more than 100% in just two years. He believes the…

Read more »

British union jack flag and Parliament house at city of Westminster in the background
Investing Articles

The FTSE 100 is on fire! Yet these 2 stocks still look cheap to me

Despite the FTSE 100 hitting record highs, there’s no shortage of undervalued opportunities across the index, says Ben McPoland.

Read more »

Female student sitting at the steps and using laptop
Investing Articles

Greggs shares: an outstanding bargain after crashing nearly 40%?

Shares of one-time market darling Greggs have been in foul form recently. But is this a once-in-a-blue-moon opportunity for our…

Read more »

Close-up of children holding a planet at the beach
Investing Articles

This FTSE 100 stock’s suddenly become the highest-yielder on the index!

The league table of FTSE 100 (INDEXFTSE:UKX) dividend stocks has a new number one. But our writer explains why there…

Read more »

Rear View Of Woman Holding Man Hand during travel in cappadocia
Investing Articles

Is this under-the-radar UK stock as cheap as its rooms?

Our writer’s been keeping an eye on a little-known UK stock that operates in a niche, but profitable, sector of…

Read more »

Young Caucasian woman holding up four fingers
Investing Articles

It’s a ‘Fabulous Friday’ for holders of these FTSE 100 shares!

Four members of the FTSE 100 (INDEXFTSE:UKX) are making their latest dividend payments today (11 July). Our writer takes a…

Read more »

Man riding the bus alone
Investing Articles

Check out this spectacular FTSE 250 stock

UK investors willing to look beyond the FTSE 100 can find some outstanding companies. Online advertising business Baltic Classifieds might…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

The JD Sports share price is down 18% in a year. And the stock’s only yielding 1.1%. Here’s what I’m doing…

With the JD Sports share price struggling and a tiny dividend on offer, there doesn’t appear to me much going…

Read more »