I just can’t believe how cheap Lloyds shares are!

If we think Lloyds Banking Group shares look cheap now, why isn’t everyone rushing for the buy button and pushing the price up and up?

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It may surprise some people but Lloyds Banking Group (LSE: LLOY) shares are one of the most popular investments for a Stocks and Shares ISA. In fact, at Hargreaves Lansdown, Lloyds was the number one buy in January 2024.

It’s also a big favourite among UK ISA millionaires. And there are more than 4,000 of those.

But just look at what’s happened to the Lloyds share price over the past decade, and weep.

No-brainer buy?

Now, I’m not going to bang on about how cheap I think Lloyds shares are on fundamental measures like the price-to-earnings (P/E) ratio.

OK, while I’m here, I might as well mention that forecasts put it as low as 5.5 by 2026. That’s well below even the FTSE 100‘s unusually low P/E of 11 right now.

And I won’t bend people’s ears over what a cracking long-term dividend stock I think this could be. I mean, nobody needs me to point out that 5.7% yield again. Or that it could rise above 7.5% on 2026 forecasts.

All good?

But what I will do is make it clear that I do see risks with Lloyds shares. For one thing, a recession tends not be good for banks. And we’re in one of those, though it’s only a little one so far.

A housing market slump doesn’t exactly help the UK’s biggest mortgage lender either. It’s good lending mortgage money to people, but less good when some of them can’t pay it back.

When will the Bank of England start to cut base rates? Governor Andrew Bailey doesn’t seem too keen just yet.

Everybody loves Lloyds?

As it happens, Lloyds seems to be a big favourite with readers of The Motley Fool. So if everyone likes the stock so much, and it’s a top buy for ISA investors (including ISA millionaires)… how come the share price is so stubbornly low?

Well, we’re all private investors. And no matter how many of us there are, the big investing firms dominate the market.

Around 85% of Lloyds shares are held by institutions, with BlackRock the main holder on 9.2%. We little folk really can’t do anything to shift the share price, no matter how much we buy or sell.

Private shareholder advantage

But that’s just fine by me. As long as the big players are wary of taking the risk, it means I can still buy Lloyds shares on low valuations and lock in more big dividend yields.

Why don’t the big firms buy Lloyds? Well, there are a few reasons, but they just don’t have the same goals as we do.

We’re after long-term gains, and we don’t mind the risks. But the fund managers are just looking to attract more customers in the short term.

We can beat them

However the big City folk go about it, historically we find that the majority of them fail to beat the stock market index.

And with our long-term buy-and-hold approach, I think we can beat them!

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.

Alan Oscroft has positions in Lloyds Banking Group Plc. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.

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