The coronavirus pandemic and subsequent economic fallout has walloped the share prices of some of the UK’s biggest, best-known and most traded companies. Among these are oil giant Royal Dutch Shell (LSE: RDSB) and banking major Lloyds Bank (LSE: LLOY).
Are these FTSE 100 titans now great picks for savvy, contrarian investors wanting to double their money? Here’s my take.
The fact that the Lloyds share price has halved in recent weeks isn’t all that surprising. The UK economy is, after all, expected to contract at its fastest rate for centuries in 2020 and take an estimated three years to fully recover.
This puts the FTSE 100 constituent in a sticky spot. With businesses shut and the prospect of rising unemployment, many firms and their workers may struggle to make payments on loans and mortgages, even with the introduction of ‘holiday’ periods. Incredibly low interest rates continue to be a drag on profits too.
At the start of April, shares in Lloyds went for 27p a pop. Although they’ve recovered slightly over recent days, they’ve not rallied anywhere near as much as other listed stocks. This suggests to me the market is still very cautious about the bank’s near-term outlook.
Thanks to regulators, Lloyds is in a far better state as a business than it was back in 2008. That said, I don’t think there can be any doubt the road ahead will be long and hard. With no dividends to keep investors incentivised, the idea it will quickly double its £21bn valuation is (very) optimistic.
If you’re determined to take a position, I’d at least wait until after the bank releases its Q1 statement on Thursday.
Royal Dutch Shell
Shell, of course, has its own set of ‘coronavirus complications’ to deal with. A lack of demand for the black stuff around the world has led to a collapse in the oil price and concerns the company may finally lose its ‘most reliable dividend payer’ crown.
This makes perfect sense. As long as uncertainty persists over when lockdowns might be fully lifted, the price of Brent crude will likely remain stubbornly low and Shell will be burning through cash. The share price may be almost 50% higher than March’s low, but it’s still down 40% year-to-date.
So, what might help from here? The easing of restrictions around the world will certainly be a boost. More cars on the roads mean a greater demand for oil. The agreement between Russia and OPEC to cut output from next month may also help to provide a floor on the oil price for a while.
For Shell’s share price specifically, news of reduced spending and falling production costs helping to secure its much-coveted dividend will likely go down well.
We won’t have long to wait for an update. Like Lloyds, the company also releases a Q1 statement on Thursday.
I fancy both Lloyds and Shell could double new investors’ money in time, albeit slowly (the former in particular). This assumes, of course, the UK and other countries manage to avoid significant ‘second waves’ and further economic pain.
As always, we at the Fool UK see any stock purchase as a long-term commitment. I’d caution against taking a ‘punt’ on either company if you aren’t prepared to stay invested for the duration.
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Paul Summers has no position in any of the shares mentioned. 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.