Investors Eye Three Key FTSE 100 Stocks Ahead of Budget Announcement

As the United Kingdom approaches the Budget announcement on November 26, 2023, investors are closely monitoring several key stocks within the FTSE 100. Recent market fluctuations have made various companies appear undervalued, prompting speculation about their potential recovery. Analysts have identified three stocks that could see significant movement based on the government’s fiscal decisions.

Lloyds Banking Group: Potential for Volatility

Lloyds Banking Group (LSE: LLOY) has demonstrated impressive growth, with its shares rising by 60% over the past year and 145% over the last five years. The bank reported full-year profits of £4.5 billion for 2024, a decrease from £5.5 billion in 2023, primarily due to one-off costs including a £700 million provision for motor finance mis-selling. To mitigate the impact of these costs, Lloyds announced a £1.7 billion share buyback, bringing total capital returns for the year to £3.6 billion including dividends.

Investors are particularly attentive to the upcoming Budget as Rachel Reeves, the Chancellor of the Exchequer, may introduce a windfall tax targeting banks, potentially increasing the surcharge on profits from 3% to 8%. Given Lloyds’ modest price-to-earnings ratio of approximately 13.9, it remains an attractive option for long-term investors, even as they await the Budget’s impact.

EasyJet Faces Challenges Amid Recovery Efforts

The budget airline EasyJet (LSE: EZJ) has encountered difficulties in its recovery from the pandemic, with its share price declining by 9.5% over the past year and 25% over five years. Although the company has seen stable bookings in the European market and growth in its new holidays division, the upcoming increase in air passenger duty by 15% from April 2024 poses a challenge. The airline industry is urging the government to reconsider this increase, though it remains uncertain what Reeves will decide.

Currently, EasyJet’s price-to-earnings ratio stands at 7.5, suggesting it may be undervalued. However, investors should be cautious, as the airline has struggled to gain a foothold in the recovering market. Those considering an investment are advised to adopt a long-term perspective to allow for sufficient time to see recovery.

Entain: A High-Risk, High-Reward Option

The gaming and gambling giant Entain (LSE: ENT) presents a different scenario. With a price-to-earnings ratio of 23, it may not fit the classic definition of a value stock, yet analysts believe there is potential for a re-rating. Entain’s shares have dipped by 3% over the past year and 45% over three years, despite strong performance in the U.S. market through its joint venture with MGM Resorts International, BetMGM.

Speculation surrounds the possibility of Reeves increasing taxes on ‘sin stocks,’ which could adversely affect Entain. Nevertheless, the growth in its U.S. operations may cushion any potential fallout. Investors will be watching closely as the Budget approaches to gauge how these developments might impact the stock’s performance.

Investors regard Lloyds as the standout among these three stocks, particularly due to its stability and potential for steady growth. In contrast, EasyJet and Entain may present more volatility but could offer rewarding returns for those willing to maintain a long-term investment strategy. As the Budget announcement draws near, the market remains poised for a week filled with potential shifts in investor sentiment.