At the end of every week, I like to take a look at Hargreaves Lansdown‘s list of most purchased stocks that week. It’s always interesting to see where the ‘crowd’ is investing.
Last week, Hargreaves Lansdown’s investors were piling into BP (LSE:BP.), Lloyds (LSE:LLOY), and Legal & General (LSE:LGEN) shares. These were the three most purchased stocks on the platform.
Now I don’t currently own any of these shares. Should I follow the crowd and buy them? Let’s discuss.
BP
I can see why BP shares are popular right now.
Recently, the oil major has been performing well. Thanks to higher oil prices, it has been generating strong profits and cash flows.
As a result, it has been able to pay down debt while simultaneously rewarding shareholders with growing dividends and share buybacks.
Meanwhile, the BP share price has fallen recently, pushing the company’s valuation down (it was already quite low) and its yield up.
The thing that puts me off here however, is oil price uncertainty. Realistically, it’s impossible to predict where oil prices (and BP’s earnings) will go over the next five or 10 years.
Given the uncertainty here, I’m happy to leave this stock alone.
Lloyds
Moving on to Lloyds shares, I imagine it’s the low share price and valuation that has been attracting investors here.
Currently, Lloyds shares can be snapped up for less than 50p each. And at current levels, the company’s price-to-earnings (P/E) ratio is just six – well below the market average.
I’m not drawn in by these low numbers however. To my mind, Lloyds faces challenges in both the short term and the long term.
In the near term, it’s facing weak economic conditions, which could potentially lead to loan losses. It’s worth noting that last week, Lloyds said it has begun to see more loans run into difficulty.
Meanwhile, in the long run, the company faces an existential threat from FinTech companies such as digital banks and payments firms, which are disrupting the banking industry.
So while the shares appear to be cheap, I won’t be buying them for my portfolio.
Legal & General
I do think Legal & General shares look quite interesting right now however.
This is a diversified financial services company with a number of growth drivers. And it’s currently trading at a low valuation (the P/E ratio is around seven).
What really stands out here though is the company’s dividend. Legal & General has put together a solid dividend track record over the last decade, and last year, the company paid out a total of 19.4p per share to investors. At today’s share price, that equates to a yield of 8.5%. That’s hard to ignore.
Of course, dividends are never guaranteed and the company could decide to lower its payout.
And there are other risks to consider here too. For example, higher interest rates may lead to losses on its bond portfolio (bond prices fall as rates rise).
At current levels however, I’m very tempted to buy the shares for my portfolio.
