The Motley Fool

Are Lloyds Bank shares a once-in-a-decade ‘buy’?

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.

Close up of newspaper headline for financial crisis news
Image source: Getty Images.

Shares in Lloyds Banking Group (LSE: LLOY) languish at lows last seen following the financial crisis of more than a decade ago. So, is the stock a once-in-a-decade ‘buy’ or a value trap?

Why I think Lloyds Bank shares look cheap

The almost 60% plunge in the share price this year has thrown up some interesting valuation indicators. Near 26p now, the price-to-tangible book value is around 0.5. And earnings have collapsed this year putting the earnings multiple above 22. For a cyclical share like Lloyds, a high multiple alongside a collapsed share price is positive. And the fact the shareholder dividend has been suspended adds further weight to the bull case.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Around 97% of its revenue comes from the UK. And the bank is wedded to the fortunes of the UK economy perhaps more closely than any other cyclical. It’s the anticipation of a downturn that’s brought the stock to its knees as much as weakness in the trading figures. And it will be the anticipation of economic recovery that will push the stock higher. Indeed, banks can be among the prime movers as far as cyclicals are concerned when the economic clouds part to reveal the first chinks of light.

But there’s a lot weighing on sentiment right now. However, things could change quickly. For example, if the UK finally agrees a free trade agreement with the EU we could see shares such as Lloyds respond well to the news. And overriding that, we have worries about the coronavirus pandemic and how it will continue to affect the economy. The arrival of a vaccine could be sudden, and the outlook could change almost overnight.

Downside risks remain

However, those things could work for the bear too. If a free trade agreement doesn’t arrive, we could see a reaction in the stock market to the downside – at least initially. And if a second wave of the pandemic bubbles up to the point that it forces further lockdowns, there will likely be downward pressure on shares such as Lloyds. And the move further down will be justified if profits take a further hit.

On top of all those probabilities, it’s worth remembering that banks tend to be more profitable in high-interest-rate environments. But higher interest rates seem like an impossible dream right now and could be decades away if they arrive at all.

Looking back at the way Lloyds behaved following the last crisis more than 10 years ago, it’s clear the up-move was short and sweet. It took just 18 months for the stock to move from below 30p to above 70p. Then, the shares moved essentially sideways for years with no further upside progress. Even though earnings continued to rise, the share price had a ceiling and the valuation simply contracted.

However, at the higher levels above 70p, there was plenty of downside risk. It came home to bite this year. So, I’d never make Lloyds a long-term hold. In that sense, it’s more of a value trap than anything else. But if you are looking for a quick move upwards, Lloyds could be a once-in-a-decade opportunity – but even now, it’s risky.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Kevin Godbold has no position in any share 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.