Barclays (LSE: BARC), Lloyds (LSE: LLOY) and AstraZeneca (LSE: AZN) should not be included in your ISA this year. Here’s why.
Is A Reshuffle On The Cards At Barclays?
The banking industry is still in recovery mode, but the shares of Barclays and Lloyds are not cheap enough to deserve attention, and there are more appealing dividend-paying shares in the marketplace, such as those of tobacco and consumer companies. Uncertainly surrounding the outlook for interest rates and shaky fundamentals also point to potential losses for these banks’ shares in the next year or so.
Barclays has risen well beyond fair value since the end end of 2104, and its latest results showed that it’d take a miracle for the bank to deliver significant returns to shareholders in the near future. Its chief executive, Antony Jenkins, is adamant that Barclays will become a different, more responsible bank, but little evidence pointing to a decisive U-turn in the way business is carried out has been provided so far.
Its strategy and short-term prospects are not particularly appealing, either. In fact, I wouldn’t be surprised if shareholders decided to push for a change in management.
“Chief executive Antony Jenkins is one of 11 key executives to share a bumper payout, as the bank awaits a fine for its role in the forex rigging scandal,” The Guardian wrote in a recent article headed “Barclays risks shareholder backlash as managers share £16m share bonuses“.
This is one to watch. I’d consider Barclays only it traded 50p lower, or about 20% below its current level.
Lloyds: Very Little Value In It
Lloyds is a terrible investment for your 2015 ISA, in my view. Every time I take a look at its share price, its equity valuation isn’t far away from 75p! How is that?
As I argued last month, one of the biggest issues I have with Lloyds is that lots of Lloyds paper will flood the market over time, thus preventing the stock from rising. It’s very expensive, too, based the value of its tangible assets.
Year to date, its performance reads 5%, as at the end of trade on March 20. In the last three months, its performance reads 5%. In the last six months, its performance reads 5%. Its one-year performance is almost 5%.
That’s a coincidence, of course, but it means a pretty simple thing: every time the government offloads a small portion of its stake — which is still significant at above 20% — the stock will go down, and then up again, slowly, until the next sale!
It’s going to be this way for a couple of years, in my view.
Moreover, such deals such as the sale of a large stake in TSB to Banco Sabadell will contribute to meaningful economic losses.
“The transaction will lead to a charge through the group’s income statement of approximately £640 million reflecting the net costs of the transitional service agreement between Lloyds and TSB, the contribution to be provided by Lloyds to TSB in moving to alternative IT provision and the gain on sale,” Lloyds said, adding that the “capital impact upon settlement of the firm shares will be a c.21 bps decrease in the group’s common equity tier 1 capital ratio“.
While the bulls point to value as Lloyds remain a cheap alternative to riskier banking stock such as Barclays and Standard Chartered, I doubt the shares will appreciate in the next 12 months or so.
AstraZeneca Is Too Expensive!
Expectations were high as recently as last week as AstraZeneca — my least favourite stock in the pharma universe — was meant to surprise the market with key findings about Brilinta.
“AstraZeneca spent four years and tested more than 20,000 patients trying to prove that the floundering cardiovascular pill Brilinta ought to be used long term after a heart attack. Those efforts have come to naught,” analysts at EP Vantage pointed out last week, adding that if Astra was expecting the anti-thrombotic pill to help lift sales of its currently marketed products to the heroic $45bn figure it forecast 10 months ago this result has dashed those hopes.
That’s pretty bad stuff, and I reckon that sales and earnings targets will have to come down at some point.
In short, I think that the funds who wanted to get a top bid from Pfizer are still invested in the hope that someone will bail them out. But, based on Astra’s pipeline of drugs and limited growth potential, I truly believe that nobody should invest in it unless its stock drops to, say, £35.
Shire and GlaxoSmithKline are much better alternatives.
