I like to look back at my ISA, and think whether I’d buy the same again today. So here are my top three reasons to buy one of my holdings, Lloyds Banking Group (LSE: LLOY) shares, in 2023.
First, a look at the chart:
The price is way down over five years, and that brings me to my first reason.
Low valuation
Valuation is the number one reason to buy a stock. If the valuation isn’t right, then surely no other reasons can be of any worth.
But I think the Lloyds bank share valuation looks just great.
The average price-to-earnings (P/E) ratio of the FTSE 100 has been around 14 to 15 over the long term. Right now, the Lloyds P/E is only 6.5.
That means the market thinks Lloyds is worth less than half the average of top UK stocks, on that measure at least. Now, the Lloyds P/E has been low for some time, and it might not change in the short term.
But can it stay so low for ever? I don’t think so.
Cash generation
Over the long term, banks have been cash cows. So as long as the economy is going well, Lloyds should generate lots of it.
It’s the UK’s biggest mortgage lender too. So as long as the housing market is strong, Lloyds should coin it there.
What’s that you say? The economy is in the dumps, with the property market in a slump?
Well, yes, but that’s this year. And maybe next. But I have no doubt both will get back to growth.
In the long term, I expect Lloyds to keep bagging the cash and paying it to me as dividends. The forecast yield is about 5% now. And the City thinks it will rise strongly in the next few years.
That brings me to the third thing.
Market sentiment
We’ve found a stock that we think is cheap. And we think it will be cash rich over the long term. So when’s the best time to buy it?
First, I do think trying to time the market is a bad idea. Folks who watch the charts, and try to buy low and sell high, so often get it wrong and lose money.
Just look at all those billionaires who’ve made fortunes through timing their buys and sells just right. Oh, that’s right, I don’t know any.
But, when a stock looks good, surely it’s a great time to buy when the market is down on it. In the words of ace investor Warren Buffett, we should be greedy when others are fearful.
To me, Lloyds bank shares in April 2023 fit the bill nicely.
Lloyds risks?
Now, the doom-mongers might be right. In fact, over the next year or too, there’s a fair chance they will. The banks really do face a tough time right now.
But if I was scared of ups and downs in the short term, I’d just keep away from shares. And over the long term, I expect Lloyds to do well. There’s a good chance I’ll buy more.
