We recently compiled a list of the 8 Best Large Cap Penny Stocks to Invest In.In this article, we are going to take a look at where Lloyds Banking Group plc (NYSE:LYG) stands against the other large cap penny stocks.
On February 4, Brian Jacobsen, the chief economist at Annex Wealth Management, joined a discussion on CNBC's 'Power Lunch' to analyze the impact of tariff threats on markets and supply chains. He thinks that large-cap growth is the way to play tariffs. The conversation centered around whether markets are becoming desensitized to tariff talk or if they remain vulnerable due to the ongoing uncertainty. Jacobsen suggested that the truth lies somewhere in between. Markets might be somewhat inured to tariff discussions, but until these tariffs manifest in data, specifically that which affect profit margins, their full impact remains uncertain. He emphasized that investors face a catch-22: with elevated margins across large-cap stocks like those in the S&P 500, there's concern about whether companies can pass on price increases without compressing profit margins.
Small-cap stocks are particularly vulnerable due to weaker profit margins and less ability to absorb increased costs from tariffs. Historically, during trade tensions like those seen from 2018 to 2019, large-cap growth stocks performed well because many received exclusions from tariffs. Jacobsen speculated that this might happen again if actual tariffs are imposed. For investors navigating this complex environment, he advised sticking to investment fundamentals and focusing on long-term valuations rather than short-term market fluctuations. He emphasized considering margin pressures and adjusting growth expectations accordingly while seeking a margin of safety for investments. So while markets may show some resilience against tariff threats due to past experiences with similar uncertainties, ongoing fears about potential tariffs continue to affect supply chains and investor strategies negatively. Investors should prioritize fundamental analysis over immediate market reactions when making decisions amidst such volatility.
Methodology
We sifted through the Finviz stock screener to compile a list of the top stocks trading between a market cap of $10 billion and $200 billion and at a share price of less than $5. We then selected the 8 penny stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database, which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
An aerial shot of a business district with the company's headquarters towering above its competitors.
Lloyds Banking Group plc (NYSE:LYG) offers banking and financial services in the UK and internationally. Through its multiple segments, it provides services ranging from personal banking and mortgages to corporate lending, insurance, and investment management. It also offers digital banking services and operates under several brands, including Lloyds Bank, Halifax, Bank of Scotland, and Scottish Widows.
It's pursuing a digital transformation currently, which includes an AI Centre of Excellence. This is to improve customer experience and reduce costs. On January 30, the company appointed Magdalena Lis, who has a PhD in Computational Linguistics (AI) from the University of Copenhagen, as head of responsible development and use of AI. Lis, with over 15 years of AI experience, will focus on enhancing products with AI while establishing safeguards for its safe deployment.
While the financials don't isolate the impact of just these transformations, they do reflect the overall progress. For the first nine months of 2024, the bank posted a £3.8 billion profit after tax and £12.7 billion in net income. Q3 2024 specifically saw income growth, including a 2% increase in net interest income, reaching £3.2 billion. The bank is investing heavily in new initiatives, including AI, with a target of £0.7 billion in additional strategic income for 2024. These efforts are part of a larger plan to enhance customer experience, boost efficiency, and deliver stronger returns.
Overall LYG ranks 6th on our list of the best large cap penny stocks to invest in. While we acknowledge the potential of LYG as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than LYG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
