Financial stocks have been hit particularly hard by the post-Brexit sell-off butthe following three big short-term losers could prove great long-term winners foryour portfolio.
Lloyds Banking Group
Lloyds Banking Group (LSE: LLOY) suffereda years worth of volatility in a fewhours on Friday and lost a fifth of its value over the day, to end up 19.93% lower. The painhas continued today: attime of writing Lloyds is down 9%. It could be worse, trading in Royal Bank of Scotland Group and Barclays has just been halted, with the stocks down14.2% and 11.5% in an hour.
Bank of England governor Mark Carney haspledged to do whatever it takes to save the UK banking system and all the banks have been pushedhard to shoreup their balancesheets inrecent years, so a complete meltdown can be ruled out. Private investors are seizing the opportunity, with Lloyds accounting for one in 10 retail buys, according to trading platforms. At just 6.71 times earnings, it certainly looks cheap. A forecast dividend yield of 6.7% by December, and 7.8% theyear after that, mayhelp offset the agony of lower interest rates for longer.Lloyds domestic focus could prove a burden if the UKeconomy takes a hit, but much of the pain does seem to be priced-in.
Legal & General Group
It was inevitable that the insurers would take a hit as well, as turbulent global stock markets ravaged their investment arms. Legal & General Group (LSE: LGEN) ended the day 17.47% lower, and has fallen more than 9% so far on Monday morning. L&G specialises in low-cost investment services, with a large suite oftracker funds, so its inevitable that its tracking global stock markets down.
But it withstood Chancellor George Osbornes assault on annuities in good shape, and investors will be hoping it can show similar resilience to Brexit. Markets have lived in a state of semi-crisis since 2007, and one thing weve learned is that share prices can spring upwards when least expected. Trading at10.15 times earnings, the price looks decent for a company that recently posted a 14% rise in both full-year profits and cash generation, and whoseSolvency II surplus stoodat 5.5bn, givinga coverage ratio of 169%. The current dividend yield of 7.1%, covered 1.4 times, will giveyou a juicy income stream as theEU exit plays out.
Standard Life
Another insurer, another disastrous Friday, with Standard Life (LSE: SL)down 17.16%. Monday has also been painful, although a drop of 6.13% looks relatively calmcompared to some of the blow-offs out there. You cantblame the referendum for all Standard Lifes woes, itsshare price has been steadily sliding over the past 12 months, as volatile stock markets tooktheir toll on a company that has transformed itself from a traditional life insurer to an IFA wrap platform and specialist wealth manager.
The stock currently yields 6.5% althoughcover looksthin at 0.7 times. Todays valuation of 21 times earnings initially looks pricey but a whopping 94% forecast rise in earnings per share in2016almost halvesthat to a more tempting11 times. Nothing is guaranteed but at times like this investors have to embrace uncertainty, provided they can thencling on for the long term.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Barclays. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
