The Motley Fool

Stock market crash part 2! Here’s why I’d shun these top FTSE 100 stocks forever

Image source: Getty Images

We’ve already had one stock market crash this year, and maybe we’re on course for another as Covid second wave fears grow. Usually, at times like these, I urge readers to buy their favourite shares at knockdown prices, then hang on for the recovery.

However, one sector worries me right now. I would think twice about buying the major FTSE 100 banks like Barclays (LSE: BARC), HSBC Holdings (LSE: HSBA) and NatWest Group (LSE: NWG) today. Or tomorrow, for that matter.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

The last dozen years have been a terrible time to invest in the banks. All now trade way below their peak share prices, which they last hit in the months before the 2008 stock market crash.

I’d beware the FTSE 100 banks

The Barclays share price hit its all-time high of 790p in 2007. It has since lost 90% of its value, and now trades at just 90p. RBS peaked at 10,225p in 2007. Today the rebranded NatWest Group share price also trades at 91p, down 99%.

For years after the financial crisis, optimistic investors bought burnt-out banking stocks hoping they’d recoup their lost value. Fat chance of that. They’ve been hammered once again, by this year’s stock market crash. HSBC and NatWest trade more than 50% lower than they did 12 months ago. Barclays is down around 35%. 

When central bankers slashed interest rates to near zero, the big banks saw net interest margins squeezed even tighter. Russ Mould, investment director at wealth platform AJ Bell, says margins have dropped by 52 basis points (0.52%) since the start of 2017.

That’s a drop of more than a fifth on loan books totalling £2.2trn. Mould calculates it costs them £10bn in lost interest every year. With the Bank of England mulling negative interest rates, those losses may grow rather than shrink.

Stock market crash losers

Worse, the government can dictate policy to these FTSE 100 companies. For example, ordering them to stop dividends and focus their firepower on bailing out businesses instead. Another worry is that the global recession will lead to a sharp rise in bad debts, further wounding balance sheets.

The FTSE 100 banks are finding it hard to make a decent return and absolutely nobody is feeling sorry for them, given prior misdemeanours. Only oil and gas producers and equipment companies have fared worse over the last five and 10 years.

I see a long-term threat, even after this year’s stock market crash has been forgotten. Ageing demographics will heap further downward pressure on interest rates. A shrinking labour force can hit productive capacity and economic growth, keeping rates lower for longer. Just look at Japan.

Barclays, HSBC and NatWest Group have issues of their own. I am particularly concerned that HSBC will get squeezed between Chinese and US governments, and be forced to make an ugly and costly choice.

Today, Barclays trades at just 6.81 times earnings. HSBC stands at 13.1 times, while NatWest is down to 3.73 times. Even at these bargain prices, I’d be reluctant to buy.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and HSBC Holdings. 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.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.