One of Warren Buffett’s famous investing sayings is “be fearful when others are greedy and greedy only when others are fearful” – or, in other words, sell when others are buying and buy when they’re selling.
But we might expect Foolish investors to know that, and looking at what Fools have been buying recently might well provide us with some ideas for good investments.
So, in this series of articles, we’re going to look at what customers of The Motley Fool ShareDealing Service have been buying in the past week or so, and what might have made them decide to do so.
Even if Neil Woodford isn’t keen on Lloyds Banking Group (LSE: LLOY) (NYSE: LYG.US) — the super-investor recently refuted rumours that he was considering taking a huge stake in the bank when the government sells off its holding — some people very clearly are, since it was at number 1 in the latest ‘Top Ten Buys’* list.
Maybe last week’s buyers feel that the current upturn in the UK economy — experts are expecting growth to have picked up sharply in the second-quarter when official figures come out tomorrow — will benefit the UK’s largest retail bank and largest mortgage lender.
Prior to the crash of 2007/08, Lloyds traded at over four times its tangible book value (TBV); currently it’s priced at about 1.5 times TBV, so there’s potentially still a huge upside — one that could see its share price soar to around 200p. And the rise could be augmented by a regular stream of income, if (or, hopefully, when) Lloyds reinstates a dividend payment.
That’s all pretty speculative of course — the world of banking has changed somewhat since the crisis that forced the government to buy almost half of Lloyds, and expecting things to return to what they were before disaster struck is simply unrealistic.
And it wouldn’t be sensible to ignore Neil Woodford’s concerns about the risk of dilution through future capital raising exercises, and the possibility that further as-yet unannounced losses will have to be recognized on Lloyds’ balance sheet over the next several years — something that could both hold back its share price and significantly affect its ability to pay a dividend.
But even if Lloyds can only achieve a share price of twice its TBV, that would still be a gain of 33%, although over what period of time is obviously uncertain. Much will depend on what happens in the aftermath of the government disposing of its stake.
And, of course, whatever other people were doing last week, only you can decide if Lloyds really is a ‘buy’ at the moment.
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> Jon doesn’t own shares in Lloyds Banking Group.
* based on aggregate data from The Motley Fool ShareDealing Service.