At 43p, are Lloyds shares a buy?

Lloyds shares have failed to excite in recent times. However, trading for 43p, could it be time for this Fool to buy?

| 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.

Happy male couple looking at a laptop screen together

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.

At the start of 2020, Lloyds (LSE: LLOY) shares were trading for above 60p. However, today a share in the British bank would set me back just 43p.

As we’ve hopped from crisis to crisis, be it the pandemic or the cost of living, the Lloyds share price has suffered. But is this the time for me to be loading up with some shares for my portfolio? Let’s find out.

A beaten-down stock

The last five years have told a dire story for Lloyds, as the stock has seen its share price pulled back by over 35%. In fact, since the turn of the century investors in Lloyds have seen losses of 87%.

2022 has told a similar story as mounting pressures like inflation have seen market confidence on its knees. To combat this, the Bank of England has pushed up interest rates. And this has caused problems for Lloyds.

Higher rates increase the likelihood of customers defaulting on payments. Obviously, this is not good news.

I also think the beaten-down price may suggest investors are preparing for a recession. Previous crises have seen the Lloyds share price take massive hits. And clearly, this would be the case in the future. Maybe this is already reflected in the stock’s price.

An opportunity?

With this said, I’m not giving up on Lloyds just yet.

One of the most prominent attractions of the stock is its dividend yield. With inflation spiking to 9.4% in the UK for June and looking like it’s not slowing down, its 4.63% yield offers me a hedge against rising rates. This passive income stream could come in handy in times ahead.

Further, I like the look of Lloyds due to its low valuation. With a price-to-earnings (P/E) ratio of 5.79, this leads me to believe that it’s undervalued. By comparison, competitor HSBC trades on a P/E just shy of 11.

There’s also the double-edged sword of interest rates. As mentioned, higher rates may hinder the firm. However, hikes will also allow the bank to charge lenders more when borrowing. With the next Bank of England rate-setting meeting coming in August, there’s been talk of rates rising by 50 basis points. This could provide a boost for revenues, helping to raise the Lloyds share price.

But with the housing market slowing, this could be an issue for the mortgage lender.

Yet the transition it has made into the rental market is one I like. Through Citra Living, the firm aims to purchase nearly 50,000 homes by the end of the decade. Long term, I think this will bear fruit for Lloyds.

Why I’d buy

The Lloyds share price may face stumbling blocks in the months ahead. But I think at 43p the stock would be a smart long-term buy for me. Its low valuation and dividends are tempting factors. And rising interest rates should hopefully have a positive spin-off on the firm.

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.

Charlie Keough has no position in any of the shares mentioned. The Motley Fool UK has recommended HSBC Holdings and 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

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A brilliantly reliable FTSE 100 share I plan to never sell!

This FTSE-quoted share has raised dividends for more than 30 years on the spin! Here's why I plan to hold…

Read more »

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

This 7.7% yielding FTSE 250 stock is up 24% in a year! Have I missed the boat?

When a stock surges, sometimes it can be too late to buy shares and capitalise. Is that the case with…

Read more »

Investing Articles

£13,200 invested in this defensive stock bags me £1K of passive income!

Building a passive income stream is possible and this Fool breaks down one investment in a single stock that could…

Read more »

Investing Articles

I think the Rolls-Royce dividend is coming back – but when?

The Rolls-Royce dividend disappeared in 2020 and has not come back. But with the company performance improving, might it reappear?

Read more »

British Pennies on a Pound Note
Investing Articles

Should I snap up this penny share in March?

Our writer is considering penny shares to buy for his portfolio next month. Does this mining company merit a place…

Read more »

Silhouette of a bull standing on top of a landscape with the sun setting behind it
Investing Articles

Stock market bubble – or start of a bull run?

Christopher Ruane considers whether the surging NVIDIA share price could be symptomatic of a wider stock market bubble forming.

Read more »

Investing Articles

Buying 8,254 Aviva shares in an empty ISA would give me a £1,370 income in year one

Harvey Jones is tempted to add Aviva shares to his Stocks and Shares ISA this year. Today’s 7.37% yield isn't…

Read more »

Investing Articles

Is the tide turning for bank shares?

Bank shares are trading on stubbornly cheap-looking valuations yet business performance in the sector is broadly robust. Should our writer…

Read more »