When I wrote about the FTSE 100 banking biggie Lloyds Banking Group (LSE: LLOY) last week, its share price was already rising fast. The Lloyds Bank share price has shown even more impressive gains in the space of the past week. As a result, it’s up by 14% since the start of June alone.
Lloyds Bank share price has been depressed since the financial crisis
This is a far bigger gain than the 2.7% increase of the FTSE 100 index during this time. I had anticipated a short-term increase in the Lloyds Bank share price last week. My reasoning was that it would be driven partly by momentum and partly by investors that are still bottom fishing. But at the Motley Fool, we are looking at stocks that can pay off for the investor in the long term. There are two ways in which this can happen. The first is dependable dividend income. The second is capital appreciation. Ideally, a combination of the two is best.
Lloyds Bank is weak on both counts. It suspended dividends in March, as a precautionary measure when the country went into lockdown. As far as capital growth goes, the fact is that LLOY has underperformed for years now. Even at the height of the financial crisis in 2008, which affected the banking and financial services sector directly, the share price was still higher than it’s now.
Bank’s business confidence survey results are weak
It’s possible, of course, that the trend can change for the Lloyds Bank share price in the future. For investors who are bullish on the economy’s prospects in particular, the bank could look like a winning buy. I’m not one of them. Consider this. LLOY’s own business confidence survey shows dismal results. The release’s headline reads “Business confidence falls to a record low as economic shutdown continues”. It further adds that despite easing of restrictions, trading conditions are difficult for business.
Not everything is gloom and doom, though. It does point to initial signs of turnaround. That’s hardly a boom, however. And to me, expecting banks to boom now is a gamble. It’s an even bigger gamble considering that another stock market crash is likely. Many of my colleagues at the Motley Fool have pointed this out in the past days, as have I. I reckon that the likes of the Lloyds Bank share price are most vulnerable to such crashes, given their cyclical nature.
Some alternative investment ideas
Since the Lloyds Bank share price appears to be a gamble now, my question is this: Why wouldn’t I go for more predictable stocks that are already giving good returns and whose prospects look good? Two examples from my own crash-time investments are the FTSE 100 cyclical stocks JD Sports Fashion and Burberry. Both were hit hard, but have already shown spectacular comebacks. And these are just two instances. There are far more that have high investing appeal, never mind the low Lloyds Bank share price. Even if it’s in for better times, I’d much rather wait for more proof of it.
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Manika Premsingh 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.