Are Lloyds shares a bargain under 50p?

Lloyds shares are rising, up 7% in the past 30 days. Dylan Hood assesses whether this stock is a bargain for his portfolio at the current price.

| 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.

A pastel colored growing graph with rising rocket.

Image source: Getty Images

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 (LSE: LLOY) shares have been steadily climbing. In fact, they’ve generated a healthy 9.7% return for investors over the past six months and 17% over a year. In the current choppy macroeconomic climate, are these shares too cheap for me to miss under 50p? Let’s take a closer look.

Streamlined business

Lloyds had a pretty rough time in 2020, as the pandemic forced branch closures across the UK. Many small businesses that had loans from Lloyds were struggling, and hence repayments came under strain. As a consequence, Lloyds incurred a £4.2bn loan impairment charge. All of these factors led to Lloyds generating just £1.2bn in pre-tax profits for the year.

However, under new leadership of Charlie Nunn, things seem to be turning around. For a start, the firm has announced it’s looking to expand back into the wealth management and investment banking space. In addition to this, it has planned to become the UK’s largest private landlord through its Citra Living venture. Both of these seem like good moves to diversify the bank’s income streams.

The bank has also announced it will be shutting 60 UK branches, recognising the consumer trend towards online banking. While it’s never easy to lay off workers, this will help the firm cut a huge sum from expenditures. I expect these funds to be reinvested in the new projects Lloyds has in the pipeline.

Lloyds shares valuation

Another reason why the shares look attractive to me is due to their cheap valuation. They currently trade on a price-to-earnings (P/E) ratio of just 6.68. This is well below the 10 P/E benchmark I use to look for cheap stocks. In addition to this, Lloyds shares offer a whopping 5.1% dividend, which is a great consideration for passive income.

Rising inflation and interest rates

Inflation has been soaring in recent months, due to a combination of pandemic-induced supply issues, low rates, and fiscal stimulus. What’s more, the Bank of England expects inflation to reach 8% in the UK by later this spring. To combat this, the BoE has been increasing interest rates, most recently to 0.75%. I think this is a double-edged sword for Lloyds.

On the one hand, it means that Lloyds can charge more when lending to customers. This could help bring in extra revenues. On the other hand, it reduces the likelihood of people taking out loans from the bank and slows the growth of the UK economy. This could be bad news for Lloyds.

The verdict

Overall, I like the look of Lloyds shares. I think they offer great value and coupled with a healthy dividend they could be a great way of generating passive income for my portfolio. Although rising interest rates might pose a threat to the bank, the expansion plans excite me enough to buy the shares while they’re still cheap.

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.

Dylan Hood 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

Mixed-race female couple enjoying themselves on a walk
Investing Articles

A once-in-a-decade chance to get rich buying growth stocks?

We haven't seen a good spell for growth stocks for quite a few years now. But I reckon the signs…

Read more »

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

The FTSE 100 is full of bargains! Here’s 1 stock I’m eyeing up

A weak economic outlook has hurt the FTSE 100. This Fool explains why she likes the look of this consumer…

Read more »

Investing Articles

2 no-brainer beginner FTSE 100 stocks to buy for my portfolio

Getting started with investing can be daunting. Here are two stocks for beginners to consider buying to build their first…

Read more »

Young black man looking at phone while on the London Overground
Investing Articles

2 recession-resistant UK shares investors should consider buying

Our writer details two UK shares she feels could withstand some of the ill-effects of the current malaise to provide…

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Glencore share price drops on results. Time to buy?

The Glencore share price wobbled a bit after a weak set of 2023 results. Here's why I have the stock…

Read more »

Mature Caucasian woman sat at a table with coffee and laptop while making notes on paper
Investing Articles

Big trouble in China sinks HSBC shares. Should I invest after record FY results?

HSBC shares have slumped following a disappointing end to 2023 for the FTSE stock. Royston Wild explains why this may…

Read more »

View of Tower Bridge in Autumn
Investing Articles

3 dirt cheap FTSE 100 shares to snap up today?

The FTSE 100 is rallying, but many shares still look super cheap on fundamentals. Is our writer buying these three…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

FTSE 100 earnings: what can we expect from Rolls-Royce in 2024?

The Rolls-Royce share price tripled in 2023. Roland Head wonders whether this FTSE 100 stock could continue that impressive trajectory…

Read more »