3 FTSE 100 stocks to watch in May

The FTSE 100 closed a touch lower on Tuesday, coming close to falling through 6000 levels, after UK Chancellor Rishi Sunak warned that the British economy could suffer a ‘severe recession’ as a result of the Covid-19 crisis.

‘Although we have put unprecedented mitigating actions in place, I certainly won’t be able to protect every job and every business,’ Sunak said during a Lords Economic Affairs meeting. ‘We’re already seeing that in the data, and no doubt there will be more hardship to come.’

The warning helped send the index 46 points lower on Tuesday as investors grow concerned about the long-term impact of the pandemic on demand for products and services. And with UK stocks experiencing high volatility amid the Covid-19 crisis, IG has honed in on some of the key blue-chip stocks to watch in May.

GlaxoSmithKline

The drug maker is on the front line in the battle against Covid-19 and its share price has performed relatively well amid the crisis, with the stock falling 22% to a low of £13.74 per share in late March. Since then, however, the stock has rebounded, climbing 20% to close at £16.60 per share on Tuesday.

The company is expected to deliver a strong overall performance in 2020, with its first quarter (Q1) results in April giving investors something to smile about. Group sales were up 19% to £91 billion, reflecting increased demand..

GlaxoSmithKline has also maintained its 2020 full-year guidance, unlike numerous other FTSE 100 companies, with its adjusted earnings per share expected to slide by 1% - 4% at constant exchange rates.

‘This guidance reflected our expectations for growth in key new products, and the start of a two-year period in which we would continue to increase investment in these products and in our R&D pipeline, alongside implementation of our new programme which will prepare the group for separation,’ the company said.

Analysts are upbeat about GSK, with UBS, Goldman Sachs and DZ Bank all reiterating ‘buy’ ratings for the stock in May. Goldman Sachs is the most optimistic of the three, issuing a target price of £20.60, implying a potential upside of 24% for the stock.

Taylor Wimpey

The British homebuilder was performing well before the advent of the Covid-19 crisis and subsequent lockdown, with the stock climbing 20% to hit a high of 236p a share in mid-February. Since then, the stock has plummeted as much as 50% and remains 30% lower than its earlier high.

The UK government’s lockdown restrictions have hit the housing market hard, but investors will welcome Taylor Wimpey’s plans to commence a phased return to construction sites in May. The homebuilder also said that demand for new homes continues to rise, contending that house prices will remain comparable to where they were before the lockdown.

The easing of lockdown restrictions is certainly good news for the UK housing market and its homebuilders but while activity will soon resume, progress is likely to be slow, according to Hansen Lu, property economist at Capital Economics.

‘Our best guess is that at least a quarter of ongoing sales will end up cancelled,’ he said. ‘Many others will be delayed as buyers assess their job prospects, seek discounts, or wait to see if prices fall.’

Lu also is not as optimistic as Taylor Wimpey, with the economist expecting house sales to remain well below pre-crisis levels by the end of the year.

Lloyds

Despite delivering a lacklustre set of quarterly results due to the economic fallout from the Covid-19 pandemic, Lloyds remains the top pick among analysts covering the UK banking sector.

Citigroup analysts are particularly fond of the stock, upgrading its rating to ‘buy’ and issuing a target price of 42p per share, implying a potential upside of 44%.

The rationale behind its assessment of Lloyds comes down to the bank’s relatively healthy balance sheet, well-discounted asset quality risks and its likelihood of emerging from the Covid-19 crisis in a far stronger position than its rivals.

Lloyds is certainly looking like the best of a bad bunch following UK banks latest earnings season, with Barclays reporting a 38% decline in pre-tax profits to £913 million, following its £2.1 billion charge to cover bad debts – which it believes will soar to as much as £4.5 billion by the end of 2020.

Then there was HSBC which told investors that it may have to set aside £8.8 billion to cover loan losses in 2020, with the Covid-19 pandemic having a major economic impact in its main markets across Asia and Europe.

Lloyds closed at 29p per share on Tuesday.

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.