Three of the UK’s biggest bank stocks have caught my investing eye recently. Barclays (LSE:BARC), HSBC Holdings (LSE:HSBA) and Lloyds Banking Group (LSE:LLOY) have been impacted by Covid-19 in contrasting ways, while a new lockdown, a new potential vaccine, and a new US president have had interesting effects on the stock market.
But what impact does all this have on which major bank stocks I invest in?
Of these three bank stocks, Barclays was hit hardest by March’s stock market crash. Between 20 February and 18 March, its share price fell rapidly by 54% from 181p to just 83p. This seems concerning, but the bank has made strides towards recovery. Its share price has risen by 61%, and at the time of writing, sits at 134p.
This recovery is partially thanks to news of a potential coronavirus vaccine, which boosted the entire stock market. But there have also been a few positive developments within the group itself. Its Q3 results were much better than expected. It remains profitable, achieving a pre-tax profit of £2.4bn, while its CET1 ratio (a measure of liquidity) is currently 14.6%.
Beyond that, the forecast for 2021 is looking positive – it should start paying out dividends at a yield of above 4% once more. Fellow Fool Cliff D’Arcy agrees that, as it stands, it is undervalued.
Unlike Barclays, HSBC has been in relatively consistent decline since its January 2018 peak of 795p per share. Helped by the Covid-19 pandemic, this hit 445p on 12 March and continued to decline until it hit its lowest share price since 1995 – 283p per share, on 25 September.
This looks terrible on paper, but since then, it has risen by 31% to 371p per share. While its profits are down 36%, it remains profitable. While interest rates are low, its new business model allows for more focus on fee-generating businesses. Combined with the fact that HSBC is also considered undervalued and has suggested that it may restart its dividend payments in 2021, these factors could help kickstart a 2021 rebound.
That said, it seems both riskier and less promising than other bank stocks, especially as its share price would be hit much harder by events in Asia than its closest UK competitors.
The Lloyds share price fell by 45% between 20 February and 23 March, from 57p to 31p. Unlike the interesting pathways taken by other bank stocks in the following nine months, Lloyds has been quite consistent, with its share price rising slightly in the last few weeks only to end up exactly where it was at the peak of the stock market crash.
On one hand, my colleague Johnathan Smith’s suggestion that “some investors may have got a little ahead of themselves on the vaccine news“, implies that this rise is somewhat unwarranted. On the other, like Barclays, Lloyds’ had hopeful Q3 results – a CET1 ratio of 15.2% and profits of around £1bn.
As with the two bank stocks mentioned above, this shows both the positives and negatives of an investment in Lloyds. But is the potential for growth worth the risk?
To answer that question, I’d say no. Not really, anyway. If I was looking for safety, I’d avoid Lloyds and HSBC altogether, and choose Barclays. Not only does it seem to have the best hope for a strong recovery in 2021, but it seems like the most likely to restart healthy dividend payments.
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Dan Peeke 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.
Motley Fool UK 2020