The election results brought cheer to FTSE 100 shares that had until very recently been facing an uncertain future. One of them is the set of banking stocks, which saw impressive gains. Royal Bank of Scotland was among the top 10 FTSE 100 gainers, rising by 8.4%, and Barclays saw a 6.2% gain. Lloyds Bank (LSE:LLOY) came next with a 5.3% increase over the last close.
This was the biggest gain for Lloyds in the last two months and the share price touched its highest level in eight months, clearly showing that political, and by extension the likelihood of policy-related, stability is key for investors at this time. Even though its share price hasn’t been rising consistently over time – far from it – I have been positive on its future and continue to be so.
This is because one big stumbling block in the recent years may well dissolve in the next few months – Brexit. While the UK economy is still quite weak, stability can also start its recovery process. Both these are big positives for LLoyds. Its financial performance will also likely be back on track in the next quarters after the impact of PPI claims passes.
That said, I’m not buying Lloyds Bank now, not after its price to earnings ratio (P/E) has run up to 23. I believe that there’s a case for investing in it when a next significant dip takes place. Given the volatility in cyclical stocks I’m guessing the opportunity will come around soon enough, like when I last made a case for buying LLOY. The share price is up over 14% since, and it has been only a month.
Instead, at this time I’m seriously considering investing in HSBC (LSE: HSBA), which contrary to the other banks didn’t see a share price increase. In fact, it was down marginally. This isn’t surprising at a time when investors in the share are more concerned about its international markets than the UK.
HSBC’s share price has been hit by the Hong Kong unrest and as a result its P/E is at a far more affordable 8.9. It hasn’t exactly seen a rally in share prices over the past few years either, but I do think it has potential.
2019 has been one of the worst years for the global economy in the past decade, and the economy is poised to perform better going forward. Improved likelihood of a trade deal between the US and China, and some chance of end to uncertainty in the UK could lift the overall business environment, even though Hong Kong isn’t out of the woods yet.
This in turn could be good for HSBC, whose share price is struggling at this time. To follow the investing principles of ace investor Warren Buffett, it’s time to “buy fear”, making HSBC my pick over Lloyds bank now.
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, HSBC Holdings, and 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.