Lloyds shares have soared nearly 16% in one month. Do I think they are cheap shares today?

After having a disastrous 2020, Lloyds shares have been rising from their recent lows. Are they cheap shares today, or a value trap for investors?

| 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.

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.

Lloyds Bank credit card

This has probably been the worst year for shareholders in Lloyds Banking Group (LSE: LLOY) since the global financial crisis of 2007–09. Lloyds is the UK’s largest domestic lender, so it’s no surprise that Lloyds shares have been brutally battered during the coronavirus crisis.

Lloyds shares crash cruelly

Over the past 12 months, Lloyds shares have ridden a roller coaster of epic proportions. At their 52-week high on 13 December, they closed at 73.66p. Even as recently as 20 February (a mere eight months ago), they hovered around 56.55p. Then global markets were hit by a ‘perfect storm’ of selling pressure, as investors sold shares to invest in safer assets such as government bonds.

Covid-19 was the reason for this worldwide fear and panic selling. It sent the UK’s FTSE 100 index crashing by a third, losing 2,600 points to close below 5,000 on 23 March. With UK gross domestic product (GDP) plunging and unemployment soaring, Lloyds shares were directly in the firing line. By 3 April, they had collapsed spectacularly, plunging to as low as 27.73p on 3 April.

Then came a huge relief rally, as global lockdowns and social restrictions helped to curb and contain the pandemic. Lloyds shares joined in the fun, soaring by a third (33%) to hit 36.88p on 8 June. At least long-suffering Lloyds shareholders had a pleasant summer, right? Wrong, because the next downward lurch was lurking just around the corner.

Down go Lloyds shares again

The next 15 weeks saw Lloyds shares battered by yet more body blows, with their price collapsing 35% to a 2020 low of 23.59p by 22 September. What appeared to be a strong post-March relief rise turned out to be a sucker’s rally that dragged in buyers before crash #2.

As I write, Lloyds stock hovers around 27.28p, down more than half (55%) in one year and a staggering 63% below their 52-week high 10 months ago. But a little bit of good news is that Lloyds shares have bounced back from their depths of a month ago. Today, they stand 15.7% above their 22 September low, which is some small consolation to their owners.

I think the share price is too low

Right now, Lloyds shares are a little above 27p each. With this small change, you could buy half a pint of milk or part-ownership of Britain’s largest bank. I know which option I’d choose.

Sure, buying Lloyds shares has been a painful, loss-making move at almost any time in the past 13 years. Also, Lloyds’ expected 2020 profits are set to be wiped out by loan losses triggered by lockdowns. The sought-after dividend has been ditched at the request of regulators. And it’s impossible to value this stock today using the usual fundamentals and metrics.

But Lloyds is huge, really huge. It has 30 million customers across powerful brands including Lloyds Bank, Bank of Scotland, Halifax, and Scottish Widows. Furthermore, it easily has enough risk capital to ride out the downturns until a coronavirus vaccine arrives. Thankfully, a huge chunk of its balance sheet is boring old mortgages (mostly with low loan-to-value ratios and housing equity galore).

Today, I see Lloyds as a cheap, leveraged bet on bumper post-Covid-19 profits. Therefore, I’d happily buy and hold Lloyds shares today, ideally in an ISA to bank tax-free capital gains and a passive income when the bank’s cash dividends return!

Cliffdarcy 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

British pound data
Investing Articles

Starting with nothing? Here’s why now is the perfect time to start building a passive income

Many are worried that 2026 might be a bad time to start investing in stocks and shares. Our Foolish author…

Read more »

ISA coins
Investing Articles

Decided not to bother with a Stocks and Shares ISA? You might be missing these 3 things!

With a fresh annual allowance for contributing to a Stocks and Shares ISA upon us, what might people who don't…

Read more »

GSK scientist holding lab syringe
Investing Articles

Why is everyone buying GSK shares?

GSK shares have been outperforming the FTSE 100 in 2026. Paul Summers takes a closer look and asks whether this…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

£10,000 invested in easyJet shares at the start of 2026 is now worth…

Anyone buying easyJet shares will have endured a rough ride since January. Paul Summers wonders whether things could get even…

Read more »

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

5 years ago, £5,000 bought 2,645 Barclays shares. But how many would it buy now?

Despite delivering an impressive return since April 2021, Barclays' shares have lagged the FTSE 100's other banks. James Beard considers…

Read more »

Side of boat fuelled by gas to liquids, advertising Shell GTL Fuel
Investing Articles

5 years ago, £5,000 bought 354 Shell shares. But how many would it buy now?

When it comes to Shell’s numbers, most of them are impressive. And it’s no different when looking at the recent…

Read more »

A rear view of a female in a bright yellow coat walking along the historic street known as The Shambles in York, UK which is a popular tourist destination in this Yorkshire city.
Investing Articles

I asked ChatGPT if I should buy Aviva, Diageo or BAE Systems stock and it said…

Aviva, Diageo and BAE Systems shares are popular FTSE 100 picks. But which of the three does ChatGPT like the…

Read more »

Tesla car at super charger station
Investing Articles

SpaceX’s IPO threatens to leave the Tesla share price on the forecourt

As Elon Musk starts fuelling the engines for a SpaceX IPO, could the Tesla share price get left in the…

Read more »