The business cycle is clearly turning for the better. Despite weak recent data trends, the UK economy is expected to grow at a robust pace both during this year and the next. And the Office for Budget Responsibility said the UK will grow at 6.5% this year and at 6% next year. Upturns in the economy are good news for FTSE 100 banking stocks as there should be a pick-up in loan growth during expansion.
Improved results for FTSE 100 banks
This is already becoming evident from their recent results. Their financial health is looking particularly better now that they have to make fewer provisions for bad debts. Earlier today, Lloyds Bank enhanced its guidance for 2021 based on improved macro conditions. HSBC and Barclays have also reported better than expected results recently and I think their share prices could rise strongly as a result.
Dividends could increase
These strong numbers should hold them in good stead as we head into 2022. Additionally, improved performances could encourage higher dividends. Since the pandemic started, banks’ dividends have been held back. The authorities asked them to stop paying dividends in light of economic uncertainty last year. They were later allowed to start paying them, but with great caution. So, their dividend yields are still muted.
Lloyds Bank was a popular income stock before the pandemic. And I believe that one of the reasons its share price has not gone back to pre-pandemic highs is exactly because of its yield. As soon as banks can pay dividends at their own discretion, I reckon its payout could improve and so also its share price. This could happen next year.
Undervalued FTSE 100 stocks
At present, these banks are trading at surprisingly low multiples. I talked about this in a recent article on HSBC, whose price-to-earnings (P/E) ratio is below 10 times, which is almost half that of the FTSE 100 index as a whole. As investors look for undervalued stocks again, I reckon that the likes of HSBC could look attractive. And it may even be possible for the bank’s share price to double from there. I think the Lloyds Bank share price may also continue to rise. And analysts believe that the Barclays share price also has significant upside.
What can go wrong
Of course it goes without saying that all forecasts are simply projections based on current conditions. And as the overall environment changes, these can change too. Indeed, things can change in the blink of an eye. In parts of Asia, coronavirus cases have started rising again. Inflation is expected to average at 4% in 2022, which could also slow growth. And withdrawal of easy policies could also impact the economy.
What I’d do
But for now, these FTSE 100 banks look like good buys for me. If all goes well, I reckon their prices could explode. I do not have any banking stocks in my portfolio so far, but as the cycle turns, it may just be the right time to put them on my investing wish list.
5 Stocks For Trying To Build Wealth After 50
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Click here to claim your free copy of this special investing report now!
Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays, 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.
This post was originally published on Motley Fool
