On average, the FTSE 100 index hasn’t gone anywhere this month. If that wasn’t bad enough, most recent trading sessions indicate that things could get even worse. The index has closed at the lowest values seen since early September as the UK imposed further lockdowns, which of course is bad news for business. A weak market can be a great time to shop for high-quality shares. But sometimes, it can be hard to distinguish between the ones that are down momentarily and those that will remain weak even as the overall conditions improve.
FTSE 100 banks are severely challenged
I’ve identified five FTSE 100 stocks that run the risk of staying weak for some time to come. I am planning to avoid these to keep my investing portfolio’s performance healthy. Two of these are banks. I’m talking about two of the biggest banking entities – Lloyds Bank and HSBC. I’m somewhat pessimistic on banks in general, but particularly these two. The Lloyds Bank share price has been quite weak this year, as would be expected, but its future is uncertain too. Talk of negative interest rates is growing, we still don’t know how Brexit is going to look when it actually happens, and the UK economy is going to slow down again after the recent lockdowns around the country. As a UK-focused bank, Lloyds is particularly vulnerable to conditions within the economy.
But internationally focused banks like HSBC are under fire too. HSBC is vulnerable to developments in Hong Kong as well as in the UK. While Hong Kong has suffered from geopolitical unrest, the UK, as was pointed out in the case of Lloyds Bank, is facing its own set of challenges. Additionally, HSBC is also caught in the US-China crossfire. All of this comes in the time of coronavirus and when the bank is already undergoing restructuring. At the very least, I’d wait for the Bank of England to give a go ahead to banks to start paying dividends again before considering buying the share.
Big oil faces demand slowdown
Big oil is another FTSE 100 segment I’m avoiding right now. Both BP and Royal Dutch Shell are facing hard times, as demand for oil and gas is impacted by the pandemic. Travel has reduced considerably, as we are more homebound than ever before. Further, going forward, it’s unlikely that travel demand will be back with a bang in the near future. The clean fuel drive is also catching speed fast, which leaves big oil companies with no choice but to pivot. How successfully they do so remains to be seen. For now, I’ll avoid buying more of these stocks.
Last, I’m avoiding Rolls-Royce Holdings, which has grabbed much attention recently because of its sharp share price fluctuations. To me, stock price volatility in itself is a red flag. But there’s more. It’s also challenged by Covid-19 and poor demand, which could leave it damaged for some time to come, making the FTSE 100 company one to avoid for now.
Manika Premsingh owns shares of BP. 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.