So far in February, the Lloyds (LSE: LLOY) share price is up by around 10%. This follows a torrid time for the bank’s share price, which was hit hard by the pandemic and fears over the economy. Could that mean the shares are now cheap? And am I tempted to buy in as the shares gain momentum?
What’s boosting the Lloyds share price?
One of the boosters for the share price, I think, is more positive commentary around the economic outlook. Andrew Bailey, Governor of the Bank of England, has been quoted saying the fast rollout of the vaccine should help the economy recover.
That’s good for banks as they are closely tied to the health of the economy. People can pay back loans when they’re employed and earning money. Businesses take out loans to grow. It all helps the banks.
Possibly also the changes to the management team may also be a factor. Lloyds already has a new chairman and has appointed a new CEO, Charlie Nunn from HSBC, to take over later this year. This new team could look to accelerate growth or change the strategy of the bank. This could help excite investors and grow the Lloyds share price.
Given Lloyds shares are far cheaper than before the pandemic, that could mean there’s the potential for further growth. The reintroduction of dividends could be another booster. However, I’m not going to buy into this recovery. Not because I don’t think Lloyds could do well in the next 12 months and beyond. More because I think that there are better shares for growing my investment portfolio.
A better choice to invest in than Lloyds Banking Group?
One share I think has far better potential to deliver growth is fast fashion e-commerce company ASOS (LSE: ASC). I like its improvement in growing operating profits, which have gone from 1% to 4.8% in the last year.
It has also recently added to its brands and profile by acquiring the intellectual property for Topshop, Miss Selfridge and others from the collapsed Arcadia retail empire. Boohoo has done similar acquisitions recently, which have worked well and helped its share price.
The brands generated around £265m in 2020, so have the potential to make a significant impact. I expect ASOS’s digital marketing expertise could grow these brands even further.
The risks, of course, are still there — principally, that boohoo is potentially more popular with the target millennial audience (and indeed arguably with investors as well).
There’s also an environmental, social, and governance risk as fast fashion is damaging for the environment, which may keep a lid on share price growth if big investors don’t feel able to buy the shares.
The group is also investing in warehouses, which adds fixed costs. If sales underperform, these facilities will be inefficient and will hit profits again.
Overall, in terms of risk versus reward, I think I’d personally add ASOS over Lloyds to my portfolio. Fast fashion is still a growth industry, ASOS is improving its operations, and acquiring new brands. After a period of disappointing investors, I think it could be turning a corner.
