I’ve not pulled my punches when it comes to assessing the outlook for Britain’s banks. Even the softest of Brexits will likely hammer the domestic economy, over a timescale which could run for a couple of years to through the next decade and possibly beyond, depending on who you talk to.
One thing’s for certain though. The country’s lenders are already suffering because of the uncertainty over how and when the UK will exit the European Union, and this was laid bare again by results from Barclays (LSE: BARC) last week.
In first quarter results it said credit impairments had soared a shocking 56% year-on-year, to £448m, while income also slipped 2% to £5.25bn. Both of these items have worsened from the prior three-month period, news of which was greeted with fresh waves of investor selling on the day.
I’m not bothered that Barclays appears to be brilliant value on paper, the firm changing hands on a sub-10 forward P/E ratio and carrying a bulky 4.6% dividend yield. I fully expect its share price to keep declining as economic conditions deteriorate and whack the bank’s performance. So I’m planning to steer well clear.
Latest news from J Sainsbury (LSE: SBRY) would also encourage me to keep avoiding this FTSE 100 share too, despite its chunky 4.9% prospective dividend yield and corresponding P/E ratio of 10.2 times.
The supermarket’s mega merger with Asda appeared to be killed off following negative comments concerning the deal from the Competition and Markets Authority in February. The watchdog though, waited until last Thursday to officially blow the proposal out of the water, a development which caused Sainsbury’s share price to topple to fresh multi-year lows.
“Sainsbury’s desperately needed this merger as they are continuing to lose market share,” John Colley of Warwick Business School correctly commented following the news. What the grocer does next to try and resurrect its flagging operations is a mystery. But one thing is for sure — additional rounds of profits-sapping discounting will be needed to stop revenues from totally collapsing.
Chin up though. If you’re seeking a Footsie stock to buy following recent share price weakness then Taylor Wimpey (LSE: TW) is a beauty, in my opinion.
The homebuilder sank around 5% in the wake of fresh trading details unpacked late last week. However, this adverse action merely reflected some light profit-taking in response to the numbers following strong share price advances in the run-up (Taylor Wimpey was dealing at 11-month highs in the hours before).
In this fresh statement, the strength of the domestic housing market was once again highlighted, the blue-chip celebrating better-than-expected sales in the period from January 1 to April 25. The average private sales per outlet also increased to 1.03 each week from 0.85 in the same period last year.
In spite of a strong start to 2019, I would suggest Taylor Wimpey’s share price remains far too cheap, as illustrated by its forward P/E ratio of 9 times and its gigantic corresponding dividend yield of 9.7%. If you’re looking for great dip buys on the FTSE 100 then last week’s weakness makes this particular housebuilder one of the best, in my opinion.
Royston Wild owns shares of Taylor Wimpey. The Motley Fool UK has recommended Barclays. 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.