There’s something to be said for Lloyds Bank (LSE: LLOY). It remains among the most popular FTSE 100 stocks, going by its trading volumes, despite recent developments. LLOY showed a sharp drop in profits in its latest financial update. It also suspended dividends as the Covid-19 crisis and the stock market crash ensued. The Lloyds Bank share price has fallen sharply in this stock market crash.
Lloyds Bank share price works in its favour
With this as the background, I imagine that speculative trading is one of the reasons for its continued popularity. But it’s not hard to see LLOY’s attractiveness for individual long-term investor either. It’s an inexpensive stock, and I don’t mean just in absolute terms. It’s price has hovered around a low 30p for much of the last month and its price-to-earnings ratio (P/E), a measure of how expensive it is compared to other stocks, is 13.3 times at the time of writing.
Compare this to another FTSE 100 stock, the pharmaceuticals biggie AstraZeneca. At its last close, AstraZeneca’s share price was at £85.60 and its P/E at 74 times. You might argue that this isn’t an entirely like-to-like comparison. After all, AZN is a defensive stock that’s doing well in uncertain economic conditions. Moreover, the company’s also working on a Covid-19 vaccine. Clearly, it has more going for it than LLOY, which unfortunately has come under the wheels of circumstances outside of its control.
But let me give you the example of another FTSE 100 banking stock, HSBC. It has a higher price of 412p (at the last close) and also a far higher P/E of 23 times. Clearly, when it comes to the share price, LLOY looks cheaper than HSBC as well.
More to consider than the Lloyds Bank share price
But I reckon that it’s the combination of price and optimism about its future that drives investors to buy it. For a long-term investor, who expects economic conditions and the performance of the banking sector to improve over time, LLOY with its long legacy may well seem like a good buy. However, I’m not so sure. In fact, I’ve long been wary of the stock.
Alternative FTSE 100 investment
Instead, I’d propose considering investing in another FTSE 100 stock with similar features to LLOY, but in a different sector. I’m talking about the housebuilding giant Barratt Developments. It had a price of 531p at the last close, having dropped sharply in the stock market crash. This is much higher than the Lloyds Bank share price, but as far as FTSE 100 share prices go, it’s in the lower price range. Further, its P/E at 7.1 times is far lower than that of LLOY.
That’s not all. Like Lloyds Bank, BDEV is also part of a cyclical industry. Property has been hard hit by economic slowdowns. The housebuilder’s construction activity has been doubly hit by the lockdown. But if its performance since the 2008 crisis is anything to go by, I’d put some faith (and more research) into it. It looks like a potentially good buy to me.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended 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.