With confidence returning to the financial markets, FTSE 100 stocks are on the rise. And according to Hargreaves Lansdown, two leading companies in particular, Lloyds (LSE:LLOY) and Glencore (LSE:GLEN), are in the top five most popular shares to buy right now.
Does that make them the best businesses to invest in this month? Let’s take a look.
Bank stocks in 2023
Financial institutions are becoming increasingly popular destinations for opportunistic investors. With interest rates rising, net interest margins of the UK’s largest banks like Lloyds are also climbing. And, subsequently, earnings are surging through the roof, paving the way for chunky dividends.
Lloyds, in particular, just hiked its shareholder payouts by 15%, pushing the yield to an alluring 5.8%. And with the Bank of England likely to continue raising rates in the fight against inflation, profit margins are on track to keep expanding.
However, this gravy train may soon come to a stop. While it remains a tiny proportion of the bank’s overall loan book, customer default rates are on the rise. And as per the latest results, a further £419m of loans were written off.
In the meantime, Lloyds customer deposits are actually shrinking as consumers shift their money into alternative savings accounts offering far better interest rates.
With fewer deposits, the bank’s ability to issue new loans could eventually become restricted. And this only amplifies the pressures of already increasing debt servicing costs of new and existing customers. Therefore, while some investors may see Lloyds as one of the best FTSE 100 stocks to buy now, I’m not entirely convinced.
Capitalising on cheap shares
Mining stocks were all the rage a few years ago. Supply chain disruptions tilted the balance between supply and demand of raw materials. And, consequently, commodity prices went through the roof, allowing companies like Glencore to report a staggering net profit of over £17.3bn in 2022!
Since then, commodity prices have fallen back down to earth. And Glencore’s share price has already begun to reflect this, with the market capitalisation shrinking by almost 20% since the start of 2023. However, investors seem to view this downward trajectory as a buying opportunity.
Looking at the latest results, earnings have been cut in half on the back of almost every product in its portfolio, seeing price shrinkage, including coal, copper, and iron. Nevertheless, the group remains one of the biggest suppliers to the global steel and energy industry.
And it seems management remains confident about the future since it just announced a $1bn special dividend and a $1.2bn share buyback programme within the next six months.
When it comes to mining stocks, investing when commodity prices are seemingly in free fall has historically been a more successful strategy. This may sound counterintuitive, but since these businesses operate in cycles, buying during a downturn maximises gains in the next upturn.
Therefore, I’m more inclined to believe that Glencore is one of the best FTSE 100 stocks to buy now over Lloyds. But it’s important to keep in mind that we may not be near the bottom of the cycle yet. So while investors may be busy buying shares today, further downward momentum could be ahead.
As such, if I were to capitalise on this opportunity, I would use a pound-cost averaging buying strategy.
