Risks to the British economy are rising. It’s why I’m not considering buying Lloyds Banking Group (LSE: LLOY), despite its cheap share price.
Happily, there are many top FTSE 100 stocks I can choose from so I don’t have to take a risk with UK-focussed shares like Lloyds.
Fresh comments from the National Institute of Economic and Social Research (NIESR) illustrate the massive threat to Britain’s banks. In its latest report — ominously titled ‘Powering Down, Not Levelling Up’ — the body warned that a mix of supply constraints, high inflation, high interest rates, and tax rises will all put pressure on both the economy and households.
The NIESR predicts these pressures could persist for a number of years too. As a consequence, it predicts GDP will grow 4.8% in 2022 before falling sharply to 1.3% and 0.8% in 2023 and 2024 respectively.
Why I’m ignoring Lloyds’ cheap share price!
Against this backdrop, I think our high street banks may struggle to grow earnings. And especially as the challenger banks pose an increasing threat to the banks’ established order. As a consequence, I fear the Lloyds’ share price could start to reverse sharply again.
As I say, the FTSE 100 firm looks very cheap right now. It trades on a forward price-to-earnings (P/E) ratio of 8.4 times. At 51.p, the share price also carries a meaty 5.1% dividend yield. This figure beats the 3.2% Footsie average by quite a margin.
However, the lead index is packed with top-quality cheap shares for me to buy right now. Lloyds’ considerable exposure to the robust UK housing market might help it make some handsome profits. But I think the dangers elsewhere far outweigh this specific plus point. So why do I need to take a risk with Lloyds?
2 FTSE 100 stocks I’d rather buy
Here are two brilliant blue-chips I’d much rather invest in today.
Broadcaster ITV faces massive competition from the streaming giants like Netflix and Amazon’s Prime. But I still think the FTSE 100 firm is a thumping buy right now. I think the vast amounts the business is spending on its highly-successful ITV Hub streaming service will deliver big profits. ITV trades on a P/E ratio of 7.5 times. It carries a huge 5.4% dividend yield too.
Packaging manufacturers like DS Smith face a considerable threat to profits as paper costs soar. But as a long-term investor, I think could prove to be a brilliant buy as e-commerce balloons across the globe. DS Smith provides all sorts of general and bespoke packing solutions to major retailers and product manufacturers in Europe, North America, Asia and Africa. The company trades on a modest P/E ratio of 12 times and sports a 4% dividend yield.
With a little research I can find many other better FTSE 100 shares to buy than Lloyds too.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Royston Wild owns DS Smith. The Motley Fool UK has recommended Amazon, DS Smith, ITV, 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.
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