Weighing up the value of Lloyds Banking Group (LSE:LLOY) versus Carnival (LSE:CCL) may seem like a futile exercise. Neither FTSE 100 share has held much appeal recently. The Lloyds share price is down over 50% year-to-date, while the Carnival share price has fallen over 66%. Nevertheless, I think it is worth looking at their viability as long-term investments.
Is the Lloyds share price a bargain?
Earnings for the second quarter of 2020 are likely to make grim reading in the banking sector. This period is fully in the coronavirus lockdown and this will be reflected in Lloyds’ report. The bank has already put money aside to cover unpaid loans, but the extent of defaults is likely to be clearer once it releases Q2 earnings. Lloyds has a price-to-earnings (P/E) ratio of 9 and earnings per share are 3p.
Some investors still see strength in the long-term outlook for Lloyds compared with its European banking peers. Regulatory changes, implemented after the 2008 financial crash, should ensure Lloyds can cope with losses. Although UK interest rates are very low, at least they are not negative (yet!). While this may give reassurance that Lloyds is not about to go bust, without a dividend to sweeten the deal, I see little appeal in investing in share today.
Cheap is not always cheerful
From above £37 in January, the Carnival share price now trades around the £12 level. A dismal drop for the world’s largest leisure travel company. The crux of Carnival’s downward spiral stems from the global coronavirus pandemic and subsequent travel bans.
Carnival’s P/E ratio is 3 and earnings per share are £3.52. These metrics point to a cheap share, but that does not necessarily ring true. A lot will hinge on how Carnival emerges from the pandemic and how profitable it proves to be in the months and years ahead. With respect to both its business and share price performance, I think it will take time for Carnival to recover its previous glory.
It is a well-known brand with a loyal following and the allure of a holiday will continue to entice in the years to come. I am in no rush to travel again, but many people I have spoken to cannot wait to book their next holiday. Clever marketing campaigns may well persuade us to forget our fears, and perhaps the travel industry will bounce back quickly. I imagine consumer spending will be more cautious, so booking holidays far in advance may be less likely. The potential for a second coronavirus wave will also affect how promptly the travel industry regains trust and traction. I think it’s too soon to consider buying shares in Carnival, but I still think the FTSE 100 still holds some cheap shares to buy.
Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Carnival 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.