Stock market crash: Is Lloyds Banking Group too cheap to miss?

Is now the time to buy into Lloyds? Royston Wild gives the lowdown on the problems facing the FTSE 100 bank in 2020 and thereafter.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

It seems as though the news for Lloyds Banking Group (LSE: LLOY) and the rest of the FTSE 100 banks is worsening by the day.

City analysts are understandably pretty bleak about the UK economy following the Covid-19 shock. The possibility of a no-deal Brexit at the end of the year casts a dark shadow over possible growth through to the end of decade, too. Economic news flow continues to paint a brutal picture and suggest that a prolonged period of GDP weakness is ahead of us.

A sea of woe

Manufacturing and services PMI data released today are the latest gauges to shake confidence. While off recent lows, the May manufacturing gauge still came in at an insipid 40.6. Things remain even worse for the critical services sector, a segment responsible for more than four-fifths of British GDP. The reading here for this month came in at 28.7. Hopes of a so-called V-shaped economic recovery seem to be receding with each new headline.

This isn’t the only news to rock Lloyds in recent days, however. Bank of England policymakers have recently raised the prospect of additional rounds of monetary easing to soothe the economic crisis. And the idea seems to be gaining traction, too. Bank governor Andrew Bailey has just told MPs that negative interest rates were now under “active review”.

Profit levels at Lloyds and its industry peers have been suffocated under the weight of ultra-loose monetary policy since the 2008–09 banking meltdown. It explains why the firm’s share price gains between 2010 and 2020 were roughly half of those printed by the broader FTSE 100. And it looks like things will be even tougher for the so-called Black Horse Bank during the 2020s.

Screen of price moves in the FTSE 100

Look past Lloyds

The extent of the storm coming Lloyds’s way cannot be accurately predicted, of course. The rate at which lockdown measures in the UK will be rolled back as infection rates climb remain anyone’s guess. Meanwhile speculation is growing over a possible ‘second surge’ in Covid-19 cases later in 2020.

It’s clear though that Lloyds is bracing itself for a storm. Last month it set aside provisions of £1.43bn largely to cover the economic cost of the coronavirus crisis. It advised that its operations would “inevitably be impacted both within the existing book and potentially in the new lending we are undertaking to support our customers”.

The Lloyds share price has fallen almost 50% in the past few months as economic fears have worsened. But the bank hasn’t become any more appealing from a value perspective. City analysts have been scrambling to downgrade their earnings estimates – consensus is now suggesting a 38% dive in annual profits in 2020 – and so the bank now trades on a forward price-to-earnings multiple of around 13 times, way above its more-recent ratings of below 10 times. With the business also pulling its dividend, there seems to be a hell of a lot of risk right now with very little reward. I’d avoid the battered blue chip at all costs.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Close-up of a woman holding modern polymer ten, twenty and fifty pound notes.
Growth Shares

This FTSE 250 stock has beaten the index by around 10x over the last year

Jon Smith rates a FTSE 250 stock that has smashed the broader index performance and could keep going based on…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

B&M shares are at record lows! Is now the time to consider buying?

The retailer, demoted from the FTSE 100 to the FTSE 250 last year, continues to struggle. But are B&M shares…

Read more »

Investing For Beginners

2 reasons why the stock market could hit 10,000 points by December

Jon Smith explains how the makeup of the UK stock market and the current valuation could support a move towards…

Read more »

Queen Street, one of Cardiff's main shopping streets, busy with Saturday shoppers.
Investing Articles

Why this FTSE 100 rocket is this investment trust’s number 1 holding

A UK investment trust is certainly going against the grain by having this FTSE 100 share as a high-conviction holding…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

These 2 FTSE growth stocks jumped 8% and 4.5% today!

Ben McPoland takes a closer look at a pair of FTSE stocks that are performing really well recently. Why are…

Read more »

Road 2025 to 2032 new year direction concept
Investing Articles

This under‑the‑radar FTSE 100 growth stock is also a secret dividend superstar!

Harvey Jones belatedly wakes up to a brilliant FTSE 100 growth stock that has an equally remarkable track record of…

Read more »

Business manager working at a pub doing the accountancy and some paperwork using a laptop computer
Investing Articles

Barratt Redrow share price plunges 9% on profits hit – time to consider buying?

Harvey Jones says FTSE 100 housebuilders continue to suffer with the Barratt Redrow share price slumping on a profit warning.…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Growth Shares

Why the next month could make or break the Lloyds share price

Jon Smith outlines two key events in coming weeks that could influence the Lloyds share price, leading him to make…

Read more »