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Forget the Lloyds share price! I’d buy this FTSE 100 stock for my ISA

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Lloyds Banking Group (LSE: LLOY) has long been a popular stock for investors to hold. At the time of writing, Lloyds’ share price declined by 30% to 45p a share from highs of 65p in December 2019.

In my opinion, Lloyds faces a deterioration in trading conditions, with pitiful returns for future investors.

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I believe the results from the final quarter of 2019 suggests the FTSE 100 bank could deliver disappointing results for the future. Net income fell 4% year-on-year to £17.1bn, with both interest and income falling.

A declining interest rate and an increasingly competitive mortgage market could result in new loans being less profitable than previous ones.

Investors are currently witnessing conditions deteriorate significantly from the impact of the coronavirus. An additional cut in interest rates could take place in order to stimulate economic growth. This could be negative for the Lloyds share price, as margins may be squeezed even further.

If this is the case for Lloyds, I think it could become increasingly difficult to encourage growth. Therefore, a reduction in dividends paid could become a real possibility, something that makes the stock popular with investors today.

What does the future hold for Lloyds’ share price?

As Britain’s biggest mortgage lender, due in part to its Halifax business, the surge of PPI provisions this year has cost Lloyds an estimated £2.45 billion, up from £750 million last year. This resulted in earnings per share falling by 36% to 3.5p.

An additional increase in bad loans has further led to a decline in operating costs, resulting in underlying profits falling by 7% to £7.5bn.

In my opinion, its low valuation fails to compensate investors for earning risks. Economic and political uncertainty could outweigh the reward from an ever-increasing risk of holding the stock.

It may be the case that the Lloyds share price is no longer as attractive to buy as it once was – and just like the car, others could come to replace the three-legged horse.

Undervalued

Barclays (LSE: BARC) share price has sunk 27%, at the time of writing, since late October 2019 to a six-month low of 140p. Despite this, I think the stock is undervalued. Its strong financial performance and encouraging growth prospects makes Barclays a hidden gem for investors.

Profit before tax, excluding litigation and conduct costs, is £6.2bn, up from £5.7bn in 2018. Meanwhile, it has outperformed on trading revenue from commodities, while fixed income increased by 19%.

I believe these are excellent indicators of the progress Barclays has been making, and makes the stock a safe investment. Especially if a bear market is creeping into your portfolio!

The City predicts Barclays’ earnings to rise 65% for 2020, and the bank has revealed an increase in the total shareholder dividend for the year of just over 38% to 9p per share.

In my opinion, Lloyds may continue to underperform with its current structure facing an inevitable decline in market conditions, leading to a reduction in its dividend yield. Barclays, on the other hand, could increase its dividend yield, attracting investment and increasing its share price.

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John Wallace holds shares in Barclays and no shares in Lloyds. The Motley Fool UK has recommended Barclays 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.

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