2 cheap FTSE 100 shares I’ll avoid like the plague in July!

Looking for the best cheap FTSE 100 shares to buy next month? Here are two that Royston Wild believes could be dangerous investor traps.

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The FTSE 100’s a great place to look for bargain shares. The London stock market’s blue-chip shares have underperformed significantly in recent years, a reflection of weak economic conditions and political turbulence in the UK.

But investors need to be careful before piling into cheap stocks. Some low-cost FTSE 100 aristocrats have delivered brilliant returns in years gone by. Yet their current weak valuations reflect the challenges they face going forwards.

Here are two Footsie legends I won’t touch with a bargepole next month.

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

Tesco

You’d think Tesco (LSE:TSCO) could be a dead cert to grow earnings as the UK’s population rapidly expands. In theory, more mouths to feed should translate to higher grocery sales, not to mention greater demand for the company’s non-edible items.

The Office for National Statistics thinks Britain’s population will swell by 9.9% in the 15 years to 2036, to 73.7m.

The problem is that competition in the supermarket sector’s extreme and growing rapidly. And it’s not just the scourge of the German discounters that’s a threat to Tesco’s earnings.

In recent days, Retail Gazette announced fellow mid-tier retailer Morrisons plans to substantially expand its own store estate, opening 400 new Morrisons Daily convenience stores to take the total to 2,000 by 2025.

Created with Highcharts 11.4.3Tesco Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Tesco’s performance against its rivals has been more promising of late. Its market share actually grew 52 basis points, to 27.6%, in the three months to 25 May. But it could struggle to keep this momentum as its rivals rapidly expand, attracting Tesco’s customers and prompting it to slash prices.

Today, Tesco shares trade on a forward price-to-earnings (P/E) ratio of 12.2 times. While well below their five-year average of 20.3 times, I’ll still leaves the supermarket on the shelf today.

Lloyds

I’m also planning to continue giving Lloyds Banking Group (LSE:LLOY) shares a wide berth. On paper, the Black Horse Bank offers even better value than Tesco shares. It trades on a forward price-to-earnings (P/E) ratio of 8.7 times. And its dividend yield for 2024 stands at a market-beating 5.7%.

Created with Highcharts 11.4.3Lloyds Banking Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

Signs of steady recovery in the housing market bode well for Lloyds, the UK’s biggest home loans provider. And things could get even better as interest rates will (likely) fall later in the year.

But, overall, I believe the outlook for retail banks like this is pretty gloomy. Rate cuts will pull down the margins they make on their lending activities. Meanwhile, longstanding structural problems with the British economy could put a cap on earnings growth.

And, like Tesco, the business faces growing competition, in this case from challenger banks like Monzo and Starling Bank.

Finally, Lloyds specifically also faces significant charges if it’s found to have mis-sold motor finance products. It’s already taken a £450m charge in a worrying reminder of the hugely expensive PPI scandal of the 2010s.

There are plenty of cut-price stocks on the FTSE 100 today. So I’m not tempted to take a chance with high-risk Tesco or Lloyds shares.

But what does the head of The Motley Fool’s investing team think?

Should you invest £1,000 in Lloyds Banking Group right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group made the list?

See the 6 stocks

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc and Tesco Plc. 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.

Pound coins for sale — 51 pence?

This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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