Here’s How Lloyds Banking Group PLC And Barclays PLC Could Double Your Money

Are Lloyds Banking Group PLC (LON: LLOY) and Barclays PLC (LON: BARC) set for 100% gains?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I really can’t figure out why the entire FTSE 100 banking sector is so lowly valued right now.

Sure, I can see real risks for HSBC Holdings and Standard Chartered with their massive exposure to Asia and no idea what toxic debt they might be left with if China really implodes. Around 80% of their turnover comes from the Asian region and I can understand why their shares are on forecast P/E ratios of between eight and nine for this year.

And it makes sense seeing Royal Bank of Scotland out of favour. It’s been so much slower than its rivals to turn its back on the crisis and it might only just manage a tiny dividend this year.

Should you invest £1,000 in Cranswick right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Cranswick made the list?

See the 6 stocks

They’re not all bad…

But when I see Lloyds Banking Group (LSE: LLOY), on a forecast P/E of only 7.6 for the current year, with its dividend already expected to be back to a 5.1% yield, I shake my head in bewilderment. And I’m stymied when I try to understand a 2016 P/E as low as 6.2 for Barclays (LSE: BARC) while it has strong earnings growth on the cards. Dividends aren’t as good as at Lloyds yet, but the 3.6% yield forecast for this year still beats the FTSE average, and with mooted 2016 dividend cover at more than three times I wouldn’t be surprised to see 5% in 2017.

The lastest share prices, of 61p for Lloyds and 161p for Barclays, put the two banks on lower valuations than HSBC and Standard Chartered, yet neither has anything like the same Asian exposure.

And Lloyds is on a lower valuation than fellow bailed-out struggler RBS. Although the 0.4% dividend yield expected from RBS is negligible compared to Lloyds’ 5.1%, RBS shares are on a higher P/E at just under 11. Are RBS shares really worth 50% more than Lloyds right now? I really don’t see it.

But the big question is, what’s a fair value for a bank?

What’s a fair price?

I think it’s fair to rate our big banks at a little below the long-term FTSE average of around 14 in the short term, but not a lot lower. And with the sector in a far fitter financial state than it’s been for decades, that average of 14 doesn’t seem unreasonable in the medium term.

For Lloyds, that would suggest a share price rise of 84% to 112p. Add a few years of compounding 5% dividends through reinvestment and we’d be close to that double.

Over at Barclays, a P/E of 14 alone would need the share price to more than double to 363p by the end of 2016. With possibly greater risk of further financial penalties for various past actions, and a little uncertainty around the direction of Barclays’ structural reform, I can see a slightly lower P/E for a little while. But a multiple of 12 would still see a near-doubling, and dividends would soon make up the rest.

A great opportunity

Are my guesses anywhere near the mark? Well, I’m not trying to make hard and fast predictions, but I do think that Lloyds and Barclays are the most attractive of our banks right now and are seriously undervalued. And they’re being held back by the sector in general, as other banks are facing significantly more serious risks.

5 Shares for the Future of Energy

Investors who don’t own energy shares need to see this now.

Because Mark Rogers — The Motley Fool UK’s Director of Investing — sees 2 key reasons why energy is set to soar.

While sanctions slam Russian supplies, nations are also racing to achieve net zero emissions, he says. Mark believes 5 companies in particular are poised for spectacular profits.

Open this new report5 Shares for the Future of Energy — and discover:

  • Britain’s Energy Fort Knox, now controlling 30% of UK energy storage
  • How to potentially get paid by the weather
  • Electric Vehicles’ secret backdoor opportunity
  • One dead simple stock for the new nuclear boom

Click the button below to find out how you can get your hands on the full report now, and as a thank you for your interest, we’ll send you one of the five picks — absolutely free!

Grab your FREE Energy recommendation now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft owns shares in Lloyds Banking Group. The Motley Fool UK has recommended Barclays and HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Calendar showing the date of 5th April on desk in a house
Investing Articles

Here’s how a £20k ISA could produce £1,580 of passive income in the next year

A Stocks and Shares ISA stuffed with dividend shares can be a lucrative source of passive income. Christopher Ruane explains…

Read more »

Investing Articles

Prediction: 12 months from now, £5,000 invested in Tesla stock could be worth…

Tesla stock has endured a miserable year so far, falling by 29%. Muhammad Cheema takes a look at how it…

Read more »

Investing Articles

See what £10,000 invested in Tesla shares at their mid-December peak is worth today 

As the world absorbs the full scale of Donald Trump's tariffs, Tesla shares are reeling. Investors who bought the stock…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Dividend Shares

2 ‘safe’ LSE dividend stocks to consider as global markets sell off

As global markets experience high levels of volatility due to economic uncertainty, investors are piling into these ‘safe-haven’ dividend stocks.

Read more »

Investing Articles

US stock market rout: an unmissable opportunity for investors?

His tech-heavy portfolio has been smashed by Trump’s tariffs. However, Dr James Fox believes there could be some opportunities in…

Read more »

Investing Articles

After a 13% ‘Trump tariff’ fall, is the Barclays share price too cheap to miss?

Does the Barclays share price fall mean we should all panic and run screaming from the stock market? Nah, of…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

2 investment trusts to consider for a Stocks and Shares ISA

These two investment trusts have a different focus -- but our writer sees both as worth considering, one more for…

Read more »

Investing Articles

Deutsche Bank reiterates Buy rating on 9.6% yielding FTSE 250 stock that was “most shorted in UK”

Our writer investigates why a major broker remains optimistic about a FTSE 250 stock that was once the most shorted…

Read more »