These FTSE 100 shares seem to offer exceptional all-round value at the moment. So what’s the catch?
BP
Oil majors like BP (LSE:BP) have plummeted again as crude prices have retraced. Worrying economic indicators from the US and China — combined with a steady rise in North American stockpiles — have driven black gold values through the floor.
There are also growing doubts over whether certain OPEC+ countries will adhere to the broader group’s stated production curbs.
Worsening conflict in the Middle East could prompt a sharp rebound in the oil price. But things look like they could get a lot worse for crude during 2024 and, by extension, the oil sector.
This explains the rock-bottom valuation that BP’s share price currently commands. It trades on a price-to-earnings (P/E) ratio of 7.1 times for next year.
Profits at oil producers are also under threat as demand for clean energy soars. Earlier this year the International Energy Agency (IEA) brought forward its ‘peak oil’ forecasts on the back of soaring electric vehicle (EVs) sales and rising renewables demand.
Recent investment in green energy should help to support earnings but this Footsie company faces significant obstacles moving forwards.
Not even a chunky 5.1% dividend yield for the next 12 months is enough to encourage me to buy BP shares.
Lloyds Bank
Banking stock Lloyds (LSE:LLOY) also faces a difficult 2024 as the UK economy struggles. A slowdown in loan growth and an increase in impairments are expected to continue in the coming months.
I’m especially worried about the company’s reliance on a strong housing market to grow profits. Moderating inflation means the Bank of England (BoE) is tipped to end its rate hiking cycle. But interest rates still look set to remain well above recent norms, choking off new mortgage demand.
Trade association UK Finance thinks lending for house purchases will drop another 8% in 2024, to £120bn. It also predicts that the number of mortgages in arrears will keep ticking higher over the short term, to 128,800 in 2024 and 137,800 in 2025.
Unfortunately, the Black Horse Bank has only a negligible presence on foreign shores. So it will have limited scope to grow profits next year — the BoE expects GDP growth to flatline at 0.1% during the fourth quarter.
At the same time, Lloyds faces a tough battle to retain customers and maintain a healthy net interest margin (NIM) as challenger banks intensify their attacks.
New entrant JN Bank, for instance, tripled customer deposits to £300m in the last two months, thanks to its high savings rates. The challengers also continue to expand their services to grab market share (OakNorth launched its new service for mid-sized businesses last month).
Lloyds’ strong brand name could help it to bat back some of this pressure. And ongoing cost-cutting should boost profits. But the threat to the company’s earnings remains high and is steadily growing.
So despite its low P/E ratio of 6.1 times for 2024 and 6.9% dividend yield, I’m not tempted to invest. I’m searching for other dirt cheap FTSE 100 stocks to buy instead.
