With UK house prices experiencing slow growth and Bitcoin’s valuation declining, investors may be tempted to buy one or both of them. Certainly, they could recover, but from a risk/reward ratio there may be superior opportunities within the FTSE 100 and FTSE 250.
One example is Lloyds (LSE: LLOY). Brexit appears to be holding back its stock price, as well as its financial prospects. However, its recent decline could represent a sound recovery opportunity alongside a FTSE 250 stock which released an update on Monday.
The company in question is gold miner Acacia (LSE: ACA). Its fourth quarter update showed that production for 2018 was 521,980 ounces of gold, significantly ahead of guidance of 435,000 to 475,00 ounces. Although this was still 32% lower than production in 2017, as a result of a transition to reduced operations and stockpile processing, production in 2018 enabled the company to report a net cash balance of $88m, a $50m increase on last year.
While Acacia has endured a challenging period, with geopolitical risks increasing significantly in the last couple of years, it’s due to report improving earnings growth in 2019. In fact, its bottom line is forecast to rise by 62% in the current year. This puts it on a price-to-earnings growth (PEG) ratio of 0.1, which suggests it offers a wide margin of safety.
With uncertainty surrounding the world economy’s outlook appearing to be rising, cheap gold miners such as Acacia could offer improving share price prospects over the medium term.
While a range of asset prices, including Bitcoin and buy-to-let, may appear to be relatively appealing at the present time, shares in Lloyds may offer significant recovery prospects. The company could offer an exceptionally low valuation versus the wider index, as well as other assets. For example, it currently has a price-to-earnings (P/E) ratio of 7.1. This suggests investors have priced in potential risks from challenges, such as a weak UK economy and wider risks facing the world economy.
In terms of the company’s operating conditions, they have the potential to improve over the next few years. The banking sector has experienced a sustained period of low interest rates, which have hurt profitability as a result of low net interest margins. However, with interest rates forecast to rise over the next few years, the profitability of banking stocks such as Lloyds may improve.
Certainly, there are possible risks ahead from Brexit, and the future path of interest rates will depend on how the economy performs after the UK leaves the EU. But with what seems to be a low valuation after recording a 23% decline in its share price over the last year, now could be an opportunity for investors to buy Lloyds shares while they trade at a low, and attractive, level.
Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. 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.