It’s unsurprising that the Lloyds Banking Group (LSE: LLOY) share price soared last week. The FTSE 100 bank jumped 5% on the day the Bank of England (BoE) surprisingly raised interest rates for the first time in three years.
This is beneficial for banks as it allows them to make greater profits from their lending activities. Okay, the 0.15% rise wasn’t seismic. The new rate remains well below the norm, near record lows of 0.1%, too. But it signalled a potential shift in policymakers’ thinking that could lead to more rises in the months ahead.
Why I worry for Lloyds’ share price
The prospect of multiple hikes in 2022 doesn’t make Lloyds an attractive buy in my book, however. The worsening outlook for the domestic economy casts a massive shadow over bank profitability next year. It didn’t get as much attention naturally, but the BoE also scaled back its growth forecasts last week.
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Threadneedle Street now expects the economy to have grown 0.6% in the final three months of 2021, down from the 1% it predicted last month. The bank warned of sluggish growth at the start of next year too as Omicron spreads rapidly.
This raises the prospect of disappointing revenues growth at UK-focussed banks like Lloyds and potentially a wave of bad loans.
Insolvency Service data last week showed company insolvencies rose back to pre-pandemic levels in November. Could a sharp uptick in loan impairments also be coming Lloyds’ way?
2 FTSE 100 shares I’d rather buy
It’s certainly true that Lloyds’ share price offers plenty of value for money on paper. At current prices of 47p per share, the bank trades on a P/E ratio of just 7.5 times for 2022. Some would argue that the risks to profits estimates are reflected by such a low valuation.
But I don’t subscribe to this line of thought. Why take a gamble with Lloyds when there are so many other cheap FTSE 100 shares for me to choose from? Here are two other dirt-cheap Footsie shares I’d rather buy right now:
- Earnings at ITV could take a whack in 2022 if advertising revenues cool due to Omicron. But as things stand, ad spending forecasts still look pretty solid — indeed, media agency GroupM this month hiked global growth forecasts for next year to 9.7%, from 8.8% previously. Meanwhile, ITV’s Video on Demand service ITV Hub also continues to grow rapidly, giving further reason to be optimistic. Today, ITV trades on a forward price-to-earnings (P/E) ratio of 7 times.
- I’d also rather buy JD Sports Fashion instead of Lloyds. Demand for athleisure continues to rise at a healthy rate, as JD’s latest financials showed (sales jumped 52% between February and July, it said in September). I’d buy JD despite the ongoing threat of supply chain issues. And the company trades on a forward price-to-earnings growth (PEG) ratio of just 0.3.
