Should I buy FTSE 100 bank stocks BARC, HSBA, LLOY, NWG and STAN?

G A Chester runs the rule over the five recovering FTSE 100 bank stocks, Barclays, HSBC, Lloyds, Natwest and Standard Chartered.

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 big FTSE 100 bank stocks — Barclays, HSBC, Lloyds, NatWest and Standard Chartered — have seen strong recoveries in their share prices over the last year. And they’ve largely extended their gains since releasing half-year reports in recent weeks.

However, their performances still lag the wider market over longer timescales. As such, and with the pandemic beginning to move into the rear-view mirror, I’m wondering if now’s a good time for me to buy these FTSE 100 bank stocks.

Performance in perspective

The table below highlights the recent strength of the banks’ performances and their generally underwhelming longer-term returns.

 

Since results (%)

1 year (%)

3 years annualised (%)

5 years annualised (%)

10 years annualised (%)

Barclays

7.8

73.5

0.8

5.5

2.9

HSBC

3.1

29.4

(12.4)

0.8

2.4

Lloyds

(0.4)

69.8

(5.9)

1.8

6.5

NatWest

5.3

95.4

(0.8)

6.6

(1.4)

Standard Chartered

5.2

17.6

(11.0)

(4.9)

(6.7)

Average

4.2

57.1

(5.9)

2.0

0.7

FTSE 100

22.1

1.4

4.9

7.1

It’s more than a decade since the great financial crisis. The banks have been through a long period of balance-sheet repairs, fines and compensation payments, and unprecedented low interest rates. In view of this unhelpful backdrop for their businesses, I’m not surprised by those weak multi-year returns.

Current valuation of these FTSE 100 bank stocks

Despite the recent strong performances in their share prices, the banks still look cheap on a number of valuation measures. The table below details their price-to-book (P/B) and price-to-earnings (P/E) ratios, and their dividend yields.

 

Share price (p)

P/B

Forward P/E

Forward dividend yield (%)

Barclays

182.7

0.5

6.4

3.3

HSBC

409.9

0.6

10

4.2

Lloyds

46.6

0.7

6.8

4.9

NatWest

215.7

0.6

14

3.9

Standard Chartered

459.2

0.4

9

3.3

The P/B ratios in particular ping my value antenna. As you can see, I can currently buy £1 of these banks’ assets for between 40p (Standard Chartered) and 70p (Lloyds). If I believe the banks’ valuations are cheap, what do I think would be a more reasonable valuation?

Future valuation

Given the protracted post-financial-crisis period of those balance-sheet repairs, fines and compensation payments, and unprecedented low interest rates, it’s not easy to judge how the valuations of these FTSE 100 bank stocks might look in more ‘normal’ times.

At the end of the day though, if they’re making profits and paying dividends, I find it hard to imagine them not commanding a P/B of at least 1 — or maybe a bit above and bit below through the economic cycle. In view of the P/Bs between 0.4 and 0.7, I think BARC, HSBA, LLOY, NWG and STAN are very buyable for me at today’s share prices.

FTSE 100 bank stocks: risk and reward

I do see some risk in investing in these banks. Their different geographical focuses provide them not only with opportunities in those regions, but also different geopolitical risks. For example, HSBC’s pivot to Asia makes it highly dependent on the future fortunes of China. Lloyds and NatWest are almost entirely geared to the prospects of the UK economy.

Together, the five bank stocks provide me with some diversification against geopolitical risk. But I have to recognise we live in a highly interconnected world, and that the financial system is a big part of it. My investments could suffer in the event of a global recession, or from the likely contagion of a major financial crisis in one of the world’s key economies.

Nevertheless, I think the current P/Bs of the five offer good share-price upside, if all goes well in the world over the next few years. And at least some downside protection, if it doesn’t. In essence, this is why the stocks are on my buy list.

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.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, Lloyds Banking Group, and Standard Chartered. 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

Here’s how investing £250 a month could bag me over £10K in passive income annually

This Fool breaks down how she would go about building a passive income stream worth over £10,000 annually to enjoy…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

I’d snap this FTSE 250 stock up in a heartbeat for juicy returns and growth!

Sumayya Mansoor explains why this FTSE 250 property stock is firmly on her radar as she looks to buy stocks…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

1 dirt-cheap FTSE 100 stock investors should consider buying in June

The FTSE 100 is littered with bargains, according to our writer. She explains why investors should be taking a closer…

Read more »

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

The Legal & General share price has gone nowhere. Why?

The Legal & General share price has performed much worse than the the FTSE 100 over the past five years.…

Read more »

Investing Articles

Where will the BT share price go in the next 12 months? Here’s what the experts say

The BT share price has been sliding for years. But after the latest set of results, it looks like the…

Read more »

Investing Articles

Are National Grid shares now a brilliant bargain?

National Grid shares look exceptionally cheap following last week's selloff. Is now the time to buy the FTSE 100 firm…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

Up more than 15%! — this small-cap company is delivering phenomenal dividend growth

There’s more good news in this company’s interim report and it may be shaping up as a decent dividend growth…

Read more »

Electric cars charging at a charging station
Investing Articles

Big news for Tesla stock investors!

Tesla has just quietly dropped a key target it set for itself just a few years ago. What does this…

Read more »