Is the Lloyds share price too cheap for 2021?

The Lloyds share price faced a dismal 2020, falling 42%. But despite challenges still remaining, is 2021 the year for big gains?

| 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.

The Lloyds (LSE: LLOY) share price fell 42% in 2020 and ended the year at just over 36p. This fall was caused by the pandemic, including the damage to the UK economy and the base rate being lowered to 0.1%. Fears of a negative interest rate being introduced put a further strain on the share price. And aside from the pandemic, the potential impacts of Brexit also impacted the bank stock, especially due to reports that the Brexit deal has been ineffective for the financial industry. So, lots of bad news. But with the Lloyds share price still at such a depressed price, would I buy it in 2021?

Impacts of Brexit

Although a Brexit deal has been agreed, Boris Johnson has still acknowledged the deal’s omissions regarding financial services. UK financial firms will therefore lose all passporting rights. This means they can no longer operate in other EEA countries without a licence to operate there. Severe ramifications are expected to follow, including Lloyds having to close down the bank accounts of many Britons living abroad in Europe.

Although British regulators have indicated that some EU organisations will be able to extend their UK operations for a temporary period, no such assurance has been granted by the EU. This means that future co-operation is likely to be based on ‘equivalence’. This means that non-EU banks would still be granted market access, albeit to a lesser extent that under the previous regime. This has not yet been agreed though, and no progress on agreements could cause the Lloyds share price to fall further.

Further considerations

As a UK-focused bank, Lloyds is also very susceptible to downturns in the UK economy. Potential further national lockdowns on the horizon, alongside the current tier system, are therefore risks worth considering.

Even so, at under 40p, these risks seem to have been factored in to the Lloyds share price. Indeed, there are a number of other considerations that could lead to big gains in 2021. These include the potential return of the dividend, after the Bank of England granted permission. Although banks need to be prudent with dividend payments, and large dividend yields are unlikely right now, it’s still a major positive for Lloyds.

The rollout of vaccines is also expected to boost the economy. I think this will lead to subsequent share price gains for Lloyds.

Is the Lloyds share price too cheap?

Today, the Lloyds share price reflects the current uncertainties, including the impacts of Brexit and the pandemic. Short-term volatility therefore seems to be the likely result, and it’s impossible to tell which way it will go.

For the long term, I’m more confident in this bank stock, however. It has shown prudence throughout the pandemic and should end its full year in a fairly strong financial position. As the UK economy starts to recover, I believe that this will be reflected in the Lloyds share price. As such, it’s a long-term buy for me!

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.

Stuart Blair 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

Investing Articles

Here’s how I’d aim for a ton of passive income from £20k in an ISA

To get the best passive income from an ISA, I think we need to balance risk with the potential rewards.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

2 FTSE 100 stocks I’d buy as the blue-chip index hits record highs

This Fool takes a look at a pair of quality FTSE 100 stocks that appear well-positioned for future gains, despite…

Read more »

Satellite on planet background
Small-Cap Shares

Here’s why AIM stock Filtronic is up 44% today

The share price of AIM stock Filtronic has surged on the back of some big news in relation to its…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

At a record high, there can still be bargain FTSE 100 shares to buy!

The FTSE 100 closed at a new all-time high this week. Our writer explains why there might still be bargain…

Read more »

Asian man looking concerned while studying paperwork at his desk in an office
Investing Articles

After profits plunge 28%, should investors consider buying Lloyds shares?

Lloyds has seen its shares wobble following the release of its latest results. But is this a chance for investors…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

Something’s changed in a good way for Reckitt in Q1, and the share price may be about to take off

With the Reckitt share price near 4,475p, is this a no-brainer stock? This long-time Fool takes a closer look at…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

This new boost in assets might just get the abrdn share price moving again

The abrdn share price has lost half its value in the past five years. But with investor confidence returning, are…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

As revenues rise 8%, is the Croda International share price set to bounce back?

The latest update from Croda International indicates that sales are starting to recover from the end of 2023, so is…

Read more »