Are Lloyds Banking Group (LSE: LLOY) and its peers about to endure a tsunami of bad loans? It’s too early to claim that trouble is around the corner, but some key economic data in recent weeks have raised my worries on this front.
The rising stress on household finances amid the inflationary boom was laid bare by the Bank of England this week. Threadneedle Street has said Britons saved a cumulative £4.5bn in November, well down on the 12-month average of £11.2bn.
At the same time, total borrowing came in at £1.2bn, smashing analyst forecasts and representing the highest total since summer 2020. This is good news for Lloyds when economic conditions are strong. It’s not ideal when data shows the British economy cooling sharply.
This follows some scary news on corporate insolvencies following the end of furlough support schemes. Latest Insolvency Service data showed rates in November hit their highest since the beginning of the pandemic.
Will Lloyds’ share price plummet?
City analysts reckon earnings at Lloyds will fall 23% in 2022 as the economy slows. I’m concerned the flow of worse-than-expected data from across the economy means profits forecasts could look increasingly flaky. This could send the Lloyds share price down as the FTSE 100 bank has no overseas exposure to offset pressure at home.
This is why I’m not tempted to buy Lloyds despite some undeniably attractive elements. Its P/E ratio is just eight times for 2022 and it’s a strong player in the UK market. It could prosper as the economy improves on the back of its huge exposure to the booming housing market and the investment it’s making in digital banking.
Lloyds’ share price is cheap, but it’s cheap for good reason, in my book. The risks at this blue-chip stock far outweigh the potential rewards, in my eyes.
Cheap FTSE 100 stocks I’d rather buy
Why take a chance with Lloyds when there are plenty of cheap FTSE 100 shares for me to buy? I’d much rather load up on ITV, for example. It’s true that the broadcaster faces huge competition for viewers from streaming companies like Netflix and Amazon.
Still, the massive popularity of its ITV Hub video-on-demand service convinces me of its huge investment potential. This UK share trades on a forward P/E ratio of just 7.6 times.
I’d also rather buy DS Smith in 2022, despite the problem of rising paper prices. In fact the FTSE 100 packaging manufacturer is a stock that already sits proudly in my shares portfolio.
The business is doing a roaring trade as the e-commerce explosion boosts demand for its boxes and other packaging products. Its emphasis on using sustainable products is also paying off as companies try to boost their green credentials. This UK share trades on a forward P/E ratio of just 12.9 times.
This is just a taster of the FTSE 100 bargains available to buy right now. The experts at The Motley Fool can help one dig out even more low-cost stocks that are better buys than Lloyds too.
