This is what I’m doing about the Lloyds share price!

The Lloyds share price has stopped rallying in recent weeks as fears over the Covid-19 crisis have resurfaced. Is now the time for me to buy in?

| 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.

Image of person checking their shares portfolio on mobile phone and computer

Image source: Getty Images.

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.

Does the Lloyds (LSE: LLOY) share price make it one of the best value stocks to buy today? Certainly at first glance Lloyds’ share price seems to scream irresistible value.

City analysts think earnings will soar 400%+ in 2021, leaving the FTSE 100 bank trading on a forward price-to-earnings (P/E) ratio of below 8 times. What’s more, brokers are forecasting a hefty hike for the annual dividend. Thus, Lloyds boasts a handsome 4.5% dividend yield.

Reasons to be cheerful

Increased investor optimism has helped the Lloyds share price rise an impressive 50% over the past 12 months. And there are good reasons why the Lloyds share price could begin rising again very soon, such as:

#1: Final Covid-19 restrictions are set to end. Noise coming out of Westminster suggests another delay to easing final Covid-19 restrictions is highly unlikely. New health secretary Sajid Javid has said July 19 will be “the end of the line” for restrictions, and that Britons will have to learn to live with the virus. Prime minister Johnson has also pledged not to reinstate lockdowns once they end in a further boost to UK-focussed shares such as Lloyds.

#2: The robust UK housing market. Even with Covid-19 restrictions persisting the UK economy has performed terrifically well so far in 2021. This has helped keep house prices charging higher, an important occurrence for Lloyds, thanks to its role as Britain’s biggest mortgage lender. What’s more, it appears as if house prices should continue rising long into the future too. This is because low interest rates and massive government help for first-time buyers look set to continue.

A brochure showing some of Lloyds Banking Group's major brands

Lloyds share price: cheap for a reason?

The government might be more determined than ever to end Covid-19 restrictions. But plans may well be delayed again if new coronavirus cases keep soaring due to the rampant Delta variant. The number of new infections just hit its highest since January, despite the successful vaccine rollout.

It could be argued that Lloyds faces huge risk even if final restrictions are rolled back in a fortnight. Many fear that the end of Covid-19 lockdowns as the Delta variant spikes could prove a catastrophe for the economic recovery, and thus the earnings rebound for Britain’s banks, if the pandemic worsens significantly.

I’m also concerned for Lloyds as I think interest rates will remain at rock-bottom levels for a long time, regardless of whether or not Covid-19 cases keep rising. In a sign of things to come, Bank of England chief Andrew Bailey recently warned againsta premature tightening in monetary conditions” in response to rising inflation. Low rates have been a thorn in the side of British banks for more than a decade, reducing the difference that they can charge borrowers and give to savers and thus curtailing profits.

The Lloyds share price looks cheap, then. But I think the bank is cheap because of its highly-fragile profits outlook. I’d much rather buy other FTSE 100 shares.

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

Investing Articles

Could Premier African Minerals be a millionaire-maker penny stock?

Shares of Premier African Minerals (LSE:PREM) have crashed over the past year. Is this a golden opportunity for me to…

Read more »

British flag, Big Ben, Houses of Parliament and British flag composition
Investing Articles

Which FTSE defence stock should I buy? Here’s what the charts say

FTSE shares like BAE Systems have been flying higher over the last couple of years as the geopolitical situation has…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

Here’s why investors should consider buying Scottish Mortgage shares today

After a steady rise in recent times, this Fool thinks Scottish Mortgage shares could be worth considering. Here he explains…

Read more »

Young black man looking at phone while on the London Overground
Growth Shares

This FTSE 250 stock keeps blowing broker forecasts out of the water

Jon Smith considers the ever-increasing share price targets for a FTSE 250 stock that has risen by 120% in the…

Read more »

A mixed ethnicity couple shopping for food in a supermarket
Investing Articles

Marks and Spencer shares could rise 29%, according to this broker

Marks and Spencer shares currently sport a P/E ratio of just 10, and one well-known City broker believes the company…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 of the best FTSE 100 beginner stocks to consider buying

The Footsie offers people just beginning their investment journey some of the best stocks to buy. Here are two to…

Read more »

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

Here’s why the Aviva share price suddenly dived

The Aviva share price suddenly dropped by over 6% the other day. But there's a simple explanation for this sudden…

Read more »

Long-term vs short-term investing concept on a staircase
Investing Articles

With no savings, I’d listen to Warren Buffett to aim for long-term wealth

Warren Buffett looks for "1-foot bars" to step over, not "7-foot bars" to jump. Stephen Wright looks at what this…

Read more »