UK Bank Stocks – The Best Performers? (LLOY, HSBA, NWG, BARC)

Since the financial crisis of 2008, most of the UK bank stocks have been in retreat as the financial ecosystem had to adapt to changing rules. In recent years however there has been somewhat of a renaissance, with all the major UK names trading up over the past 12 months. With this in mind, we want to see how the stocks of these firms compare, and which names might warrant a slightly closer look.

On a year to date basis, all four names outperform the FTSE 100 index (+5.8%), with the 40% gains seen by Natwest shares (LON: NWG) standing out as one of the leading performers in the UK. Barclays stock (LON: BARC) comes a close second by that metric, with a 33.6% increase also delivering well above average. HSBC and Lloyds lag the group, with 7.22% and 12.92% gains nothing to be sniffed at, the comparison against the outperformers stands out.

Whilst you may want to follow the leaders as far as stock price appreciation, there is more to be considered in a well thought out analysis.

With the ever-evolving landscape of the banking sector, investors are constantly evaluating their options to optimize returns and HSBC and Lloyds have caught the attention due in part to this perceived value gap. Each bank offers its unique prospects, and over the past 5 years, the stocks have moved very little. Around 6% gains for HSBA, against a 5% drop for LLOY tells a contrasting tale.

A closer look at the price-to-earnings (P/E) ratio reveals that Lloyds’ shares, with a P/E of 7.4, whereas HSBC’s shares have a P/E of 7.1.

When it comes to yield, Lloyds offers a healthy 5%, which may attract certain dividend-seeking investors. However, HSBC overshadows this with a higher yield of 7%. For investors who prioritize regular income streams, this higher yield can be particularly compelling. Additionally, industry analysts project a slightly more robust revenue growth for HSBC at 3.5% annually versus Lloyds’ estimated 3.2%.

To quantify these percentages into long-term financial gains, consider an investment of £1,000. Investing this amount into Lloyds’ 5%-yielding shares over a 30-year period would result in an additional £3,467. Comparatively, that same £1,000 investment in HSBC’s shares at their 7% yield would yield a more impressive £7,165 over the same time frame.

However, investments are rarely without risk. Both banks face the challenge of declining net interest margins which could affect profitability. Lloyds, in particular, has the added pressure of potential legal actions, presenting additional levels of risk not as prevalent with HSBC.

To decide between the sector at large may seem complicated, and that is because it can be. You can see there are various ways to value stocks, and the way in which you do so may be more dictated by your goals. If you are seeking income, looking at high dividend payers, with a stable platform may be the way to go, but if you are seeking growth, then analysing what other value is being provided may be key.

With Natwest shares being sold back into private hands from the Government, and with capital appreciation also coming by way of the bank buying back stock off the market, there could be a value play here but you would do well as always to take any investment under advisement. What is certain however is that the UK bank sector certainly seems to be in better health than in years gone by.