These are tough times for Britain’s major banks like Lloyds, NatWest Group and Barclays. It’s not just the threat posed by Covid-19 and a spike in bad loans as companies go to the wall and individuals feel the pinch. The prospect of an economically-destructive no-deal Brexit also threatens to turbocharge impairments and smash revenues for these FTSE 100 shares.
News of a fresh ratings downgrade by Standard & Poor’s illustrates the threat facing Lloyds et al. According to Reuters, the ratings agency now expects the British economy to tank 9.7% in 2020, worse than its prior forecast of an 8.1% drop made just three months ago.
Bad news for these UK shares
On the plus side S&P upgraded its 2021 forecasts to show a 7.9% rebound versus the predicted 6.5% rise made earlier. However, it warned that “a hard Brexit leading to new import and export tariffs, as well as non-tariff trade barriers” could have a significant impact on the British economy next year.
The risks to UK shares like Lloyds are clearly quite significant. Yet their share prices don’t seem to reflect these immense dangers. Although superficially cheap, this particular FTSE 100 bank trades on a forward price-to-earnings (P/E) ratio of 25 times. And it doesn’t offer any sort of dividend yield to cushion the blow for investors either.
2 cheap FTSE 100 stocks I’d buy instead!
I’m not interested in dip-buying Lloyds shares after the recent stock market crash. I’d much rather buy these FTSE 100 shares for my Stocks and Shares ISA instead:
- Fresnillo’s been on the back foot in recent days as a strong US dollar has damaged demand for precious metals. Still, the outlook for silver prices remains quite robust. In the near term, I expect silver to lift on the back of rising inflationary concerns as central banks frantically print money. Intense macroeconomic and geopolitical uncertainty should help it gain more ground too. And further out, industrial demand for Fresnillo’s product should steadily improve as the global economy rebounds. This FTSE 100 share trades on a forward price-to-earnings growth (PEG) reading of 0.5. This should make it seriously attractive to bargain hunters.
- Vodafone Group continues to look grossly undervalued by the market in my opinion. Not only does this UK share trade on a PEG ratio of just 0.7 for this fiscal year. It boasts a mighty 7.7% dividend yield as well. It’s not just a supreme buy for risk-averse investors, in my book, given that telecoms demand remains stable during economic upturns and downturns. It’s that this FTSE 100 share is a terrific way to get rich from rocketing mobile data demand. GSMA Intelligence reckon global smartphone penetration will hit 80% by 2025. And this will be driven by soaring demand in some of Vodafone’s major markets like India and Sub-Saharan African economies such as Ghana and South Africa.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, Fresnillo, 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.