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Forget the Lloyds share price! I’d buy this UK share in an ISA for the economic downturn

Royston Wild
·3-min read
Image of person checking their shares portfolio on mobile phone and computer
Image of person checking their shares portfolio on mobile phone and computer

You could be forgiven for thinking that the Covid-19 crisis is almost over if the movement of UK share prices is anything to go by. The FTSE 100 for instance has rocketed 14% since November began and recently hit five-month highs above 6,400 points.

A slew of good news surrounding coronavirus vaccines has helped to repair battered investor confidence. But it’s still too early to proclaim that an end to the pandemic could be upon us. Key questions over the eventual success of these vaccines and how they’ll be rolled out to the population remain. Meanwhile, Covid-19 infection rates continue to spike across the globe. The world economy isn’t quite out of the woods yet.

A high-risk UK share

The Lloyds Banking Group (LSE: LLOY) share price is one that’s soared in recent weeks. At 35.7p per share, the FTSE 100 bank is now trading at its most expensive since the beginning of June.

In my opinion, this puts it in significant danger of a fresh share price correction. City analysts reckon Lloyds will bounce from a 64% earnings drop in 2020 with a 160% rebound in annual profits next year. However, I’m concerned a strong bottom-line recovery at the UK share could remain elusive.

The experts at Morgan Stanley have summed up my concerns perfectly in a recent research note. The bank reckons the UK economy will only get “back to normal” in early 2023 and that the recovery will lag that of other major economies.

Morgan Stanley says another Covid-19 lockdown will hamper the economic rebound, while its expectations of a no-quota and no-tariff deal in manufactured goods with the European Union will create additional problems “as Brexit increases barriers to trade and drags on investment.” Finally, the bank expects the Bank of England to drag interest rates down to zero in another hit to Lloyds’ profitability.

A better bet than Lloyds

Today, this blue-chip UK share trades on a rock-bottom price-to-earnings (P/E) ratio of 9 times for 2021. Still, the high chance of current earnings forecasts being derailed means this low ratio doesn’t appeal to me. By extension, Lloyds’ chunky 4.7% dividend yield for next year hasn’t turned my head either.

I’d much rather buy Begbies Traynor Group in my Stocks and Shares ISA in the current climate. The insolvency services provider announced this week that adjusted operating profits were up 25% in the six months to October as the British economy struggled. Unfortunately, the number of businesses experiencing severe distress inevitably surges during downturns. And the ONS suggests things could be about to get much worse. A whopping 14% of businesses either have low or no confidence that they’ll survive the next three months.

City analysts reckon Begbies Traynor’s earnings will rise 5% this fiscal year (to April 2021). It leaves the UK share trading on an undemanding P/E ratio of 14 times. And this, combined with a chunky 3.5% dividend yield, makes it a great buy for value chasers, in my opinion.

The post Forget the Lloyds share price! I’d buy this UK share in an ISA for the economic downturn appeared first on The Motley Fool UK.

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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended 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